Baroness Worthington
Main Page: Baroness Worthington (Crossbench - Life peer)Enterprise and Regulatory Reform Bill
Baroness Worthington Excerpts(11 years, 5 months ago)
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Baroness Worthington
“(b) the advancement of initiatives with the purpose of facilitating significant improvements in natural resource efficiency and energy savings;”
Baroness Worthington
My Lords, we should remind ourselves why these green purposes are so important. This bank has been set up in order to facilitate investment into green projects and to help the UK to move to a low carbon economy. The definitions set out in the Bill will be the guiding principles by which the bank operates. The bank could definitely be sold off in the future; there are provisions in the Bill to enable this to happen, so these governing principles are very important and must pass the test of time.
The amendment would introduce two changes to the Government’s proposed wording in Clause 1(1)(b). First, a test of significance would ensure that projects showed a significant advancement in resource efficiency or energy saving. We believe that this is important not because we do not trust the bank but, as I say, because of how it may change and develop in the future. The test of significance would prevent projects qualifying legally for support from the bank which deliver only a very marginal improvement in any project. It is not beyond the imagination to see that under these definitions of purpose you could secure support and funding for a very marginal improvement in the efficiency of a coal-fired boiler, for example. That is not the sort of investment I think the Government are seeking; therefore, this part of the Bill needs tightening for the avoidance of doubt.
It might be argued that this is illogical and that we will not see a bank that is called the Green Investment Bank investing in coal-fired projects. I have an example of how things can go quite illogically wrong when dealing with climate change and greenhouse gases. The global carbon market has an investment facility called the clean development mechanism, under which it is perfectly legal and possible to invest in slightly more efficient coal-fired power stations in India to allow for European coal-fired power stations to carry on emitting. When we get into the world of sustainability, climate change and emissions reduction, things can get a bit illogical. It is important that a lot of attention is paid to these definitions and that we get them right.
The second change proposed in the amendment is to add a specific reference to energy savings. A very strict interpretation of natural resource efficiency might preclude energy efficiency from electricity. Electricity is not a natural resource, it is manmade. Again, we want to make sure, for the avoidance of doubt, that the bank is set up to focus on electricity and energy saving. We know that this is true because, of the five areas identified in the bank’s objects, two are about energy efficiency—one for commercial entities and one to support the Green Deal. They are very important for electricity efficiency, and we are not convinced that the provision fits well with this definition. So we encourage the Government to reconsider the wording of subsection (1)(b) on natural resource efficiency, because we do not think that it does what the Government want it to do.
Finally, I have two questions for the Minister: what is his definition of,
“efficiency in the use of natural resources”?
Secondly, will he undertake to amend the wording to make sure that energy saving, in particular electricity savings, are included under these purposes?
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Marland)
My Lords, here we go. We have nine days in Committee— I work it out at 36 hours—and what a way to start. What a pleasant surprise it is for me that the noble Baroness, Lady Worthington, is dealing with this amendment. I moved department to get away from her incisive grilling, but it has come back to haunt me. Nevertheless, I welcome very much seeing her opposite me as she is much better looking than the noble Lord, Lord Adonis.
As always, this Bill will leave this House much better for the great interrogation that this House will give it, and I want to say in advance how grateful I am to all noble Lords for the time that they are about to dedicate to this. I also thank the Opposition for their co-operation throughout this process, the officials who are in serried ranks behind me and of course my noble friend Lord Attlee and others who will be in his place and will have to listen to this response.
The noble Baroness poses an extremely reasonable question and I compliment her on her great knowledge in this field, almost unrivalled in many ways. We have obviously had discussions on this issue with the chairman, the noble Lord, Lord Smith of Kelvin, and I would like to read out his views on it from the Second Reading debate because I think that it sets a framework for what we are going to talk about today. He said:
“We know that we are going to be held to very high standards on green issues in both the investments and our own operations. We welcome the requirement to report on carbon emissions and the positive impact that our investments should have on reducing UK emissions. We will go further than the requirements of quoted companies by reporting in detail on our portfolio. We will also take the long-term view and have regard to the work of the Committee on Climate Change. I ask noble Lords for support for the Government's broad definition of ‘green purposes’. Waste and recycling—for example, anaerobic digestion—can have a positive impact, and it would make the Green Investment Bank’s task more difficult if there were changes in our mandate by a narrowing of the green definition”.—[Official Report, 14/11/12; cols. 1528-29.]
I think that I could stand here all night and make a case for this, but I could not do it better than the chairman himself, who has been appointed to run this independent bank. On that basis, I ask the noble Baroness to withdraw her amendment because I think the noble Lord has said everything that needs to be said.
Baroness Worthington
I thank the Minister for his response. I am slightly perplexed as I do not think that the quote from the noble Lord, Lord Smith, really address the questions that I have raised. We would agree with his point about not wanting to narrow the definition. It is important that we give ourselves flexibility, not least because we hope that this bank will be around for a long time. Things will change during the time that it is around and we do not want to overly constrain it. We are suggesting not to narrow the definition but to make it slightly more specific in its wording. I hope that that can be taken on board. If it is narrowing, it is only to add a test of significance, which, I think, is a legally important word that we should not dismiss lightly. So I am happy to withdraw the amendment, but on the basis that perhaps we could think about these two questions a bit more carefully. I beg leave to withdraw the amendment.
Baroness Worthington
“(3) The Bank shall set out annual targets for the reduction in greenhouse gas emissions achieved by its investments.”
Baroness Worthington
My Lords, I am afraid that I am going to continue the theme that I started with the first amendment. These amendments are designed to make the purpose of the bank unequivocal. The amendments create a duty to assess the impact of the Green Investment Bank’s decisions on the Climate Change Act 2008.
The rationale for this is that, as we just discussed, the stated purposes under Clause 1 can be widely interpreted. That is not to say that they will be, but they can be. We are writing law and we ought to try to make it as future-proof as possible. We believe that, given that at the moment the scope includes a provision that the bank can fund increased efficiency of natural resources, we need something that is much more specific about the impact of the bank as a whole on our climate change targets. It would still be possible for the bank to go down an investment path, which would be taking us out of line with the trajectory of emissions reductions required under the Climate Change Act. That is the purpose for tabling the amendments.
Specifically, Amendment 4 makes an explicit link between the bank and provisions under the Climate Change Act. It sets out the context within which the bank operates. Yes, the Bill already states that one of the purposes is to reduce emissions, but it then goes on to water that down by talking about investment in natural resource efficiency. So for the avoidance of any doubt, we want a link created that makes it absolutely clear that the bank and our climate budgets are linked.
It is very important that we have that wider context because, if you look at this very narrowly, emissions reductions at the scale of a project or single investment are one thing, but then when you look at the totality of what the bank is doing, there ought to be an explicit link to the broader context. That broader context is the need to reduce our emissions, our legally binding targets and carbon budgets.
These are challenging targets and they require government as a whole and all government instruments to work in tandem to deliver them on time. Making this link with the bank helps fully to align the bank’s purposes with the meeting of those legal objectives.
The specific reference in the amendments requires a link to be taken into account of the advice from the Committee on Climate Change. This is important. Greenhouse gas reduction is a complicated business. It is very technical and we do not want the bank to have to reinvent wheels. There is a body of experts there and it would be wise to create a link between the two. For example, the bank may be thinking of setting itself greenhouse gas reduction targets, as was mentioned in a Guardian article recently. The CEO of the bank, Shaun Kingsbury, was quoted as saying he was going to introduce “transparent” measures for measuring CO2 and the impact that the bank is having on CO2. This is an area which will require quite a lot of technical understanding of various aspects of how you account for greenhouse gas emissions. The Committee on Climate Change is the leading source of advice on this and it would strengthen the bank’s position if it had an explicit link to that committee and had a duty to consider the advice created by the committee.
A specific example might be where we are trying to untangle whether investments are generating emission reductions that are additional or not under the terms of how you account for greenhouse gas reductions. Many of our sectors in the UK are covered by existing caps and existing regulations. Counting of those is not straightforward and we believe that there would be a great deal of merit in the advice that the Committee on Climate Change provides to the Government on these technical and quite complicated issues being made available to the Green Investment Bank and its board. I know that one of the concerns that the Government may have in accepting these amendments is that it might increase the likelihood of judicial review, but we do not believe that it is a genuine concern. Obviously, judicial review on procedural issues can be taken irrespective of these links here, and introducing the requirement for the bank to co-ordinate itself with the Climate Change Act would reduce the risk of JR. It would give the bank a clear procedure that it can follow and should give it good comfort that it is on the right track if it follows this procedure. So we hope that the risk of JR will not be the primary reason why the Government might seek to oppose the amendment. If the Minister does not believe that the amendments are needed, would it not be good to align the Green Investment Bank with the Climate Change Act? Perhaps he could say a bit more about that, because it is at the heart of the matter to align our legislation so that ultimately we achieve our objectives.
Lord Marland
My Lords, I have a sense of deja vu, thinking that I am still in the Department for Energy and Climate Change—where, of course, the Green Investment Bank was largely initiated, so I am extremely keen that it gets off on the right footing for that reason alone. I believe that my noble friend Lord Teverson, who always speaks so eloquently on the subject, actually answered the question that he posed himself. We could not have written a better list if we had tried. My concern is that we would get into definition overkill as we take this Bill through the House.
My noble friend mentioned that the reduction of carbon is not relevant on the individual investments, but it is at the top line. I would respectfully—I emphasise that word for the noble Lord—point out that it is the fundamental investments that will reduce carbon emissions. It is only at the top level—I see the noble Lord, Lord Oxburgh, sagely nodding his head—that you will achieve the carbon reduction. The Government are very heavily committed to this. It is no accident that the noble Lord, Lord Stern, was on the advisory board that set up the bank and that was advising at all levels. As a result of that, the noble Lord, Lord Smith, has made it clear that the bank will have a very high regard—as it should—for the Energy and Climate Change Committee because it is fundamental for the Government and for the future of the business. However, I exercise a word of caution, because there are important activities that are clearly green but do not necessarily reduce greenhouse gas emissions—for example, recycling and improvements in water quality. We would want this bank to invest in such activities, I am sure, but that would not necessarily reduce carbon emissions.
I have not mentioned a judicial review in my line of inquiry because I think it is far more important that this Committee gets this into the right shape rather than for it to be directed by a judicial review. However, the bank’s board has agreed—across the board—that the bank will voluntarily report on greenhouse gas impacts on its investments. This is in addition to the requirement for the bank to report on the greenhouse gas emissions associated with its own activities. So it comes as no surprise to all of us, after discussions with the noble Lords, Lord Adonis and Lord Smith of Kelvin, that it is absolutely at the heart of what the bank is doing. I hope that that gives confidence to noble Lords and I therefore respectfully ask them to withdraw their amendment.
Baroness Worthington
My Lords, I thank the Minister for his response. We do not doubt that many parts of government are fully on board with the need for investments to deliver low carbon economy to meet our Climate Change Act 2008 targets. However, it will not have gone unnoticed that this certainty is not shared by everyone in the Government. Unfortunately, there is an atmosphere of uncertainty about policy and direction of travel. There is a great deal of difference between taking strategy A or strategy B to meet our targets. We could go through a whole host of investments and incremental technologies or incremental shifts in fuels that we use, or we could go down a different path and take a far more innovative and cleaner route. The trajectory of emissions would be very different as a result.
Choices are available and the body that we have created to advise us on that is the Committee on Climate Change. We believe that there will be a great deal of benefit in having closer ties between the Green Investment Bank, which I hope will be a delivery agent and will start to get pounds spent and concrete poured, and the legal structures that we have in place that help us to determine the path that we shall take. That is the purpose of the amendment and I am happy to withdraw it.
Lord Teverson
My Lords, I shall speak also to Amendment 11. Here, I am trying to be as helpful as I can be to the Minister in trying to find ways in which we can make this investment bank even more effective in finding ways of providing finance. We will come later to the arguments about lending.
There are two obvious areas where we could assist the Government and the board of the Green Investment Bank, when appropriate. I absolutely agree that the worst thing that we could do is try to shovel out through this bank too much money too quickly and allow it to lose its reputation in terms of investment appraisal and doing the right thing. It should build up that reputation over a sensible period. However, given the need in the United Kingdom for investment in green matters and energy, we know that £3 billion, although it is a lot of money to all of us, will not last indefinitely. We therefore need to start thinking ahead now. Two areas should be considered.
My first amendment refers to the European Emissions Trading Scheme. I remind the Grand Committee that there is a list in subsection (3), which states:
“It may in particular be given by way of …”.
We are not therefore talking about hypothecation of the ETS revenues. We are saying that this is one of the areas where the bank and the Government may look to facilitate funding of this bank. It is an extra piece of the armoury for the bank and the Government that could be, but not necessarily has to be, used—although I think it would be a very good idea. I remind noble Lords that the EU-ETS is coming to the end of its second phase. In fact, at the end of this month that phase will end and we will move into phase three. In phase two, the Government have already raised some £1.3 billion-worth in sales of so-called EUAs, or units of European Union—forgive me, I have forgotten what the A stands for.
Lord Wigley
My Lords, I apologise for coming in rather late, but I am in good time for the amendment that I wanted to catch up with, Amendment 11, and to follow on from the question regarding nuclear decommissioning. I live in a part of north-west Wales where there are two nuclear power stations. Trawsfynydd nuclear power station stopped generating two decades ago. It now employs some 600 people on decommissioning, more than it ever employed when it was generating electricity. The message that comes home from that is the uncertainty with regard to the cost of decommissioning and the length of time, and the need, therefore, to have financial cover for that.
This becomes particularly relevant with regard to the new reactor that is likely to be forthcoming with Hitachi at Wylfa in Anglesey. There is considerable support in Anglesey for the renewal of the nuclear power station. But the one reservation that people would have is if there were uncertainty as to the eventual decommissioning and the resultant costs arising from that station, particularly if in the private sector the company running it were to go out of existence. There needs to be a cast-iron guarantee with regard to funding for that purpose in order to maintain the good will towards the building of that new reactor at Wylfa. It is needed in energy terms and in terms of investment in the local economy in north-west Wales.
Therefore, the amendment goes to the heart of some very important aspects of nuclear power. Whereas I have a considerable amount of sympathy with the amendment in terms of the green bank and developing green alternative sources of electricity, that has to go on side by side with the nuclear dimension. Whatever settlement is finally reached it has to encompass both sides of that equation.
Baroness Worthington
My Lords, I welcome the amendments tabled by the noble Lord, Lord Teverson, if for no other reason than that they encourage us to have a wider debate about how this bank can operate and gain access to finance. This is important in the context that we need to see a huge upscaling of investment into the UK’s low-carbon infrastructure. It is estimated that between £220 billion and £330 billion is needed over the next decade, and historic levels of investment have been very low at only £6 billion to £8 billion. We need to be thinking creatively about how we can massively increase the available revenues for the bank. It is unfortunate in that context that the Government have set out on this path with at least one arm tied behind their back by preventing borrowing. We will come on to talk about that as we move through the amendments.
In the context of having set up a bank and putting a relatively low amount of money in to start, then putting in a hurdle against borrowing further, it is important for us to think creatively. In fact, it forces us to think creatively so I very much welcome the amendments of the noble Lord, Lord Teverson, which raise two very interesting ideas.
The EU ETS is a complex piece of legislation, but it creates a new asset class in that it creates allowances that have a financial value. I am not sure how they are managed because maybe that falls between DECC and the Treasury, but I suspect that we are not managing them as well as we could be. In addition to thinking about the revenues that we have gained directly from the auctions, how about thinking about the allowances themselves as assets that can be used to secure loans? They clearly have a financial value but as the noble Lord, Lord Teverson, suggested, sadly their value at the moment is low because we simply have an overabundance of these allowances.
I welcome the creation of the Green Investment Bank if for no other reason than it now means that we have a smart set of individuals drawn largely from the private sector—from banks and financial institutions—who I am sure can, if they put their minds to it, come up with various clever mechanisms for raising finance. I urge the Minister and his department to say to the noble Lord, Lord Smith, and his board, “Let’s think creatively and open up this debate. We have an emissions trading scheme that creates this asset class. How could we use it to increase the level of investment into the things that we want to see built?”.
On the second suggestion regarding the Nuclear Liabilities Fund, I share some of the concerns of the noble Lords, Lord Jenkin of Roding and Lord Wigley. But again, it shows we are thinking creatively. I understand that a financial fund needs to be available for the time of decommissioning, but the nuclear profile of our stations is fairly clear. We may have life extensions and we all know in advance when that money is needed. I do not see any danger therefore in using some of that to raise more finance and create wealth in the interim as long as we are managing it correctly. So I welcome the amendment; it opens up an interesting debate about how we currently manage money in government. Now that we have created essentially a Government-owned bank, I hope that over time and, as the noble Lord, Lord Teverson, was very keen to stress, when the right moment occurs, we will see this bank stepping into much more interesting territory. We look forward to the Minister’s comments on that point.
Lord Teverson
I thank my noble friend the Minister for his response. I fully accept that the EU ETS money route is not precluded by the Bill as it is, and I suppose that it would be nice to have it on the list as a nudge or a reminder to the Treasury that it was a possible flow. That was all that the amendment did, but it would tie in well with the philosophy of the carbon market and trying to recycle money into helping the greening of the European economy and the UK even more.
Baroness Worthington
It struck me that the revenues from the EU ETS auctions would be considerable, even at this depressed carbon price. How much money will the auctions raise in the next few years, and how does that compare to the £3 billion that has been put up as a stake for the bank?
Lord Teverson
I read an estimate somewhere of about £1.3 billion a year. But it all depends on the carbon price. That is the key thing, and we do not know that.
Lord Marland
Perhaps I can help. It depends on the market, which is not there at the moment to buy it. We investigated and got a lot lower offer than £6.62 for the price. That is six months ago, and I cannot remember what figures were involved. I am sure that we could invite the Department of Energy and Climate Change to provide some information in the normal course. It depends on a willing buyer and the price at which they are sold.
Baroness Worthington
I have done some back of the envelope calculations, and at about 100 million tonnes it will be in the region of £1 billion or £1.5 billion. That is not an insubstantial amount of money, and it will rise in time, which would mean that the bank’s initial deposit was paid back by those auctions in less than three years. That is an important context for the discussion.
Lord Teverson
I thank the noble Baroness for her comments. It is certainly an area that I would like to come back to. I agree with my noble friend that putting all the Nuclear Liabilities Fund into the Green Investment Bank might not be the best way in which to spread the portfolio, although it would be even worse to put it back into the nuclear industry itself. That would be a bit like the Mirror Group reinvesting the pensions funds in itself, or whatever it did. The area needs looking at, and a broader investment strategy for the NLF that included a sensible investment in a bank like this would be a good way forward.
I will continue to look for opportunities to help the Government and hope that we can have further conversations about this—but I beg leave to withdraw the amendment.
Baroness Worthington
“(3A) The Secretary of State shall consult on additional forms in which the Bank may raise investment funding, including the issuance of bonds.
(3B) The Secretary of State shall consult the Bank of England granting the Bank access to the Quantitative Easing programme.
(3C) The Secretary of State shall report to Parliament on the results of a consultation under subsections (3A) and (3B) no later than 12 months following enactment.”
Baroness Worthington
This, as noble Lords can see, is a probing amendment but continues on the theme. We are trying to address a market failure in the creation of this bank. There has been a financial crisis and, as we emerge from it, it is clear that commercial bank lending is going to be further constrained. The Basel III requirements will mean that the recapitalisation of banks will discourage them from holding longer-term loans on their balance sheets, which will potentially increase costs. That means a reduction in loans, just at the time when we need to see more money flowing into these solutions. Things are getting much more difficult.
In that context, it is important that we have a bank that can help to compensate for the increased constraints coming in the private sector. Yet, as I have mentioned, we have created a bank that, sadly, is constrained because it has a relatively small amount of starting capital. I am not saying that it is easy to spend money, and we should not just be seeking to spend it rapidly and not wisely. However, we must weigh up the scale of the challenge with what we are creating. It also forces us to think about how we are going to increase the leverage of that finance and ensure that it is seen to grow to the kind of levels that we need.
Our amendment is along similar lines to the amendment of the noble Lord, Lord Teverson, and talks about two other ways in which finance could potentially be raised. We would encourage the Government to consult on these. We are not saying that we have a final, detailed position on this, but these are fertile areas for exploration. The bond market is huge, as I am sure that noble Lords are aware. As yet, the bond market is largely untapped for low carbon investment because, by its nature, it is fairly conservative and seeks out asset classes with a long track record of delivery. Time is needed to develop new assets, and that requires expertise.
This is exactly what we hope is being created in the Green Investment Bank—a new set of experts who could help to create the sorts of asset classes that enable private-sector bond market participants to come in behind and start to invest in them. That is why we have tabled the amendment. There is no shortage of private sector investment looking for safe and credible investment vehicles. The fact that the bank is, under this legislation, a wholly owned non-departmental body is attractive, so this is an important area for it. There is a good fit here as regards bond issues; they tend to have a long lifespan, which is exactly what some of these infrastructure projects will have. By their very nature, it is infrastructure that will be here for a long time.
We therefore encourage the Minister to think about bonds as a mechanism for raising finance. In particular, I have learnt a reasonable amount today about covered bonds. This is an interesting mechanism that could help to raise finance without adding to the public debt. In effect, we would create a new class of covered bond, which would give comfort to investors by providing a double security on the loans. The UK’s covered bond legislation could be examined to see how it could be adapted to encourage investment in green and low carbon technologies.
The other matter on which we would like to consult is quantitative easing. That is also an obvious way in which we potentially could create mechanisms for a greater flow of finance into this bank. We understand that it is not the Government but the Bank of England that controls it, but we also know that there are close ties between them, and this area could also be very fertile and is definitely worthy of consultation. This is why we have tabled amendments on these important issues. I beg to move.
The Deputy Chairman of Committees (Baroness Pitkeathley)
Amendment proposed:
“Page 3, line 10, at end insert”,
the words as printed—but not quite as printed, because there is a typo in the fourth line. After:
“The Secretary of State shall consult the Bank of England”,
we need to insert the word “on” before,
“granting the Bank access to the Quantitative Easing programme”.
Lord Marland
I am very grateful for this probing amendment, which goes back to the creative thinking on how we can get more money into the Green Investment Bank. The point is that we have committed to invest £3 billion up to 2015. That is a set figure and we have set out our stall. It has been agreed by the Commission and any change would require state aid, which is a pretty significant process and which would take time. So the allowance of bonds or ISAs, which are incredibly valuable things, will not, I am afraid, be achievable within the timetable up to 2015. For the purposes of clarity, however, we are interested in exploring this—and why would we not be? We will be looking at this and debating it further. Clearly, we are not going to get investment into this bank unless it starts to get a track record, which most bond and ISA investors would want to see. When the bank has its track record up and running, we will carry on with this.
Of course, we would need another amendment in terms of Bank of England quantitative easing and so forth. We would need an awful lot more than that, let us be fair, because it is way beyond my pay grade to start discussing such figures and such immense subjects of finance. I am grateful for the suggestions. We recognise that they are constructive and we would like to carry on the dialogue over time. With that, I hope that the noble Baroness will withdraw her amendment.
Baroness Worthington
I thank the Minister for his response. A consultation would certainly help to flesh out some of these ideas and may bring forward even more. I would encourage the department to really think about how we can start a creative dialogue about such mechanisms. We have had four in front of us today, which are worthy of discussion. They are big topics in themselves, so a formal process would help us to understand some of the issues.
It slightly worries me when I hear that quantitative easing is above the Minister’s pay grade. We are not doing a marginal thing here; we are talking about investment in UK infrastructure. We have seen government announcements about a £40 billion stimulus of investment into infrastructure. If it is £40 billion, why can only £3 billion of that be put into the Green Investment Bank? We should not treat this as marginal. It should be centre stage in our stimulus package and in getting our economy back on track. That is why £3 billion is not enough and why we need to think about ways of getting it to be a much larger sum. A consultation would be very welcome, thank you. I beg leave to withdraw.
Baroness Worthington
“( ) The Bank shall publish in its annual report what proportion of investments made in accordance with the green purposes outlined in section 1(1) shall be allocated to proven technologies, and what proportion shall be allocated to innovative technologies; and shall make a proposal for these proportions over its forward plan for the next three years.”
Baroness Worthington
My Lords, this amendment is designed to try to elicit a few more comments from the Government on where this investment will be targeted—perhaps on the spectrum of entirely safe commercially proven technologies towards the more innovative end of the spectrum. It is prompted by a report about the launch of the bank from the CEO, Shaun Kingsbury, who, I suspect, in an effort to try to begin the process of creating a track record for being a sensible investor, said that only safe and proven technologies would be invested in.
We are not critical of that as it makes sense, but in much of the literature about the setting up of the bank there is a discussion of the desirability of investing in late-stage innovation. We think that is important because it is about ensuring that this bank is doing something that is not currently done in the market: it is addressing a market failure. The balance between investing in already proven technologies and more innovative solutions is crucial to the bank’s identity and to its success. Obviously it should not operate in the realms of risky investment and venture capital investment but it ought to operate in a space that has perhaps been overlooked by traditional investors. In that way, it would be adding value to the existing market.
We have tabled an amendment which is designed to try to tease out this area of the bank’s operations to make the policy much clearer so that there is more transparency. It is worth saying a few words about where late-stage innovation might occur. It is clear that the Government are seeking to create a crowding-in effect rather than a crowding out effect. That is an interesting phrase and one that we should definitely seek to achieve. We do not want to be competing with existing private investments, but beating a path down which other investors can follow. That crowding in is linked with the concept of what is a late-stage innovation. The current list of technologies that the bank will be investing in is broad. There will be room for innovation among those categories that have already been selected, but there are other technologies that are perhaps not on the list, which is slightly regrettable. I mention wave and tidal technologies because that is an area where the UK could have a great potential to lead globally. We have exactly the right geography for these very important technologies, which are not yet commercially viable. We know that the policy is coming and we look forward to contracts for different mechanisms that might bring these technologies on. It would seem a shame to preclude those sorts of technologies from the list that the bank is looking at.
The amendment is asking for further clarity about where the bank will position itself compared with tried and tested technologies and more innovative aspects, which might play more to the UK’s strengths. We would welcome the Minister saying a few words about the bank’s attitude to that. Perhaps he could also talk about wave and tidal technologies as I think those are hugely important for the UK. I beg to move.
Lord Brooke of Sutton Mandeville
I assume that the noble Baroness’s proposal is born of previous literature. Could she tell the Grand Committee what proportion has been given to innovative technologies as against existing ones? We are an inventive nation. In other words, what kind of percentage does she envisage will emerge out of this plan?
Baroness Worthington
I do not have a number in mind. This is a newly created facility, which we have to explore. As there has not been a previous example of a bank like this being created in the UK, there is no precedent on which to draw. Perhaps we could look overseas. We have had examples cited from Germany; there are similar banks in Portugal, Spain and Holland; and the Australians are in the process of setting up their own investment vehicle. I do not have an answer, but I am sure that, with some study, the department could provide us with some guidelines or some examples from overseas.
Lord Marland
I am sure that the noble Baroness would agree that 20% would be a reasonable part of the bank’s investment. That is the right number because, as part of this agreement, the bank is permitted to make 20% of its investment in other sectors, a key one being marine energy, which I know is of great interest to the chairman. It was also of great interest to me in my previous department and is of great interest to the noble Baroness. It uses our great attributes of tides and waves. There is a lot of activity going on there. We have created marine parks, and I see this as a key future. As I said, the bank has 20% of its funds allocated to this area.
This is an interesting probing amendment. But where I would resist movement in this direction, other than giving confidence to the noble Baroness, is that if we start using words like proven technologies, I am not sure that we can create the right definition. We all understand what the noble Baroness means. Going back to the core of what the bank is set up to do, it is to demonstrate the ability to make both a positive return and a green impact. All those areas that the noble Baroness and I know well would certainly fit into this exciting new development. With that, I hope that she will withdraw her amendment.
Baroness Worthington
I thank the Minister for his comments, which were reassuring. I think that 20% sounds about right, but who knows? The most important factor, which should not be overlooked in our desire to create this pedigree and track record is that there will be times when we need to cut a path through otherwise unexplored territory. There is a market failure out there that this bank can address. By having a targeted, focused remit, I hope that it will find investment opportunities that others have overlooked. I welcome the comments from the Minister and I beg leave to withdraw the amendment.