Varun Sivaram

Energy, Security, and Climate

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Report from London

by Michael Levi
March 24, 2010

I’ve been in London since Sunday, talking to people about climate policy (and about the Iranian nuclear program). One topic that’s come up repeatedly is the UK’s annual Budget, which was announced today, with a new Green Bank as a centerpiece. The politics of climate policy here are a world apart from those in the United States – I’ve been meeting with senior people from government, the (Conservative) opposition, and NGOs, and I’m struck by the fact that everyone claims that the idea is theirs.

The substance is also pretty interesting. The idea of the green bank is to strategically use public capital to incentivize private investments in low-carbon infrastructure and technology. This makes good sense in principle – even with a price on carbon, other market failures will lead to underinvestment unless there is a meaningful public role. One of the biggest is the failure of the private sector to invest in large-scale enabling infrastructure, such as smart grids and electric vehicle charging networks. That’s because investment will likely need to be massive, but returns are very hard to predict and subject to substantial policy uncertainty. That’s why I’m partial to Tom Burke’s suggestion for how the Bank should work, though the complete collection of expert recommendations for operating the Bank is well worth a read. (Also take a look at the statement from E3G, the NGO that’s been a major force behind the Bank proposal).

A green bank has been proposed for the U.S. too, though the politics of active government intervention in the private sector, particularly during normal economic times, are trickier here. My sense is that any U.S. green bank would also have substantially less flexibility than its UK counterpart. For example, the UK bank will probably do some venture capital and private equity investments. I have a hard time seeing that flying politically in the United States, since it would require the government to take equity stakes in (more) private enterprise; because of that constraint, a U.S. bank would probably focus exclusively on debt. Perhaps that’s a topic for a later post.

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