The G20 has just been and gone, but another London summit last month saw Prime Minister Gordon Brown, business secretary Lord Mandelson and climate change secretary Ed Miliband, talk of the danger that Britain would get left behind in the “global race” towards a low-carbon economy.

The flipside, they said, was an opportunity to create hundreds of thousands of jobs in renewable energy and other areas of carbon reduction at a time when unemployment is surging in the wider economy. Despite this, just four days after the summit, the government announced the suspension of funding for solar power schemes under its Low Carbon Buildings Programme (LCBP); which provides grants of up to £2,500 for the installation of microgeneration technologies in homes, community organisations and other public and private buildings, with PV the most popular type of application.

Britain has committed just £1.5 billion of its £25bn reflationary measures to green stimulus, according to HSBC. However, Jemma Robinson of the Renewable Energy Association (REA) comments that “They keep talking about this new green deal but there’s nothing concrete to grab hold of.”

A final strategy, based on responses from the summit and a consultation, is expected this summer. However, scepticism about the government’s resolve and ability to pay runs deep, not least in view of recent funding decisions.

The Department of Energy and Climate Change has said Phase 2 of the LCBP will not be extended and remaining funds, thought to total about £8 million, will be returned to the Treasury when the LCBP ends this June.

In contrast, the association is demanding £625 million be spent immediately to safeguard the UK’s existing renewables industry and to ensure 2020 targets on carbon cuts are met. It says £10 billion is needed in the long term to match the sums spent by other countries including Germany, France, the US and China – proportionate to GDP – and to meet investment levels recommended in the Stern report.

James Cameron, executive director of Climate Change Capital, said the government should issue “carbon bonds” along the lines of war bonds in the Second World War to bridge the gap in funding for renewable energy. The REA also backs the idea.

Despite the recession spurring people to save, the government may successfully encourage people to invest in bonds, which would appear more attractive investments as other financial instruments are viewed as risky or discredited.

Climate Change Capital has proposed this idea to the government, and Cameron comments “…in broad terms you either create a government bond for, say, a specific renewable energy project. Or you put a bunch of assets together linked to renewable energy, and the government provides some underwriting for that.”

Martin Berg, vice president, carbon emissions originator at Merrill Lynch in London, said the sums needed to develop the UK’s renewables infrastructure and meet renewable energy targets were too large to rely only on public borrowing alone.

“My view is that the UK has to unleash private sector money into this market but also get entrepreneurial money flowing in.”

He discusses that carbon bonds could take two forms:

1.     They could either operate in exactly the same way as gilts (UK government bonds), but with different branding. In theory investors would be content with slightly lower returns because they would have the satisfaction of knowing the money was ring-fenced for green development. 

OR as an alternative they could be

2.     linked to specific projects. Here the returns for investors would depend on the success of the revenue steam in question – often via carbon credits in the emissions market – but also on the level of risk associated with a particular project. As always, a higher-risk project would need to pay a higher return.

The details will need further attention to attract investment, but one things for sure – we need investment and we need it as soon as possible.

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