The British automotive industry is to receive more than £2bn in soft loans under a new deal which was announced by Business Secretary, Peter Mandelson last week.

The European Investment Bank (EIB) will only provide loans to businesses who agree to fund projects that ‘further the UK objectives on low carbon and green technology’ (Source Edie.net).  These ‘Green’ conditions which form part of the loan deal will aim to meet the government’s wider commitments of reducing CO2.

The package includes:

1. Guarantees to unlock loans of up to £1.3bn European Investment Bank (EIB) guarantees for investment in lower carbon initiatives; and

2. Loans or loan guarantees to support of up to £1bn of lending for lower carbon initiatives for non-EIB backed projects  (Source: Edie.net)

The UK Business Secretary, Peter Mandelson comments:  “The car industry can and should be a vibrant part of that future…The steps we are taking will help companies speed their way to becoming greener, more innovative and more productive. This is the route to securing jobs for the long term as we build a more balanced economy for Britain’s future.”

Furthermore, the ‘Green Deal’ would unlock loans of up to £1.3 billion from the European Investment Bank while the government would guarantee a further £1 billion in loans for investment in environmentally friendly cars.

Given the recent financial bailouts that have cost the UK government, and its tax payers dearly, provokes a lot of debate about the usefulness of this proposed deal.   “This industry is not a lame duck and this is no bailout,” he said. “There is no blank cheque on offer, no operating subsidies. We are committed to ensuring that anything backed by the scheme offers value for taxpayers’ money, enables us to green Britain’s economic recovery, delivers significant innovation in processes or technologies for the long term, supports jobs and skills in Britain.”

The EIB is instrumental in brokering the deal, in granting medium and long-term loans and guarantees for investment projects to assist the development of the European Union.   Within its remit, the EIB aims to protect the natural and urban environment, by ensuring that projects submitted for funding comply with national and Community environmental legislation.  

In the last five years, the EIB it has invested EUR 26 bn in water and waste management, public transport facilities, urban planning and reducing atmospheric pollution.   The ‘Innovation 2000′ (i2i) initiative, launched at Small and Medium size businesses in March 2000 also aims to build a Europe based on knowledge and innovation. It is clear that the EIB role is encouraging investment in green automotive designs. 

However, the Conservatives have already criticised Mandelson’s plan to unlock loans for car manufacturers and increase investment in “greener” cars.   Kenneth Clarke has claimed to have suggested a similar deal of offering loan guarantees for the finance arm of car companies last November.  This debate may be yet another battle of the Commons to win votes, but perhaps the proof of the new deal is in the EIB’s track records to stimulate the green innovation which is much need in the automotive industry.