A masterplan to kickstart the ‘green’ economy and boost GDP has been proposed to Downing Street by Cambridge UK CleanTech entrepreneur, Michael Evans.The founder of tidal power company Green-Tide Turbines explained the core principles of his CleanTech funding blueprint to PM David Cameron and Deputy PM, Nick Clegg, at the G20 conference in Mexico.
He has followed through with a White Paper that urges the Treasury, the Department of Business Innovation and Skills and leading banks to use a combination of index-linked carbon bonds, tax incentives for corporates and a strategically focused Green Investment Bank to release cash back into the real economy.
Evans says the resulting City of London bond market could be opened up to the rest of the world, generating wealth and jobs while creating inward investment to the UK and reinforcing London as the world’s financial hub.
Evans says his approach would have the bonus benefits of improving low carbon infrastructure, reducing CO2 emissions and generating tax revenue that could be used to pay back national debt.
While CleanTech plays continue to attract big investment in the United States, British counterparts have struggled for funding. Evans says there is no excuse to allow the funding void to widen.
He told Business Weekly: “There is no less cash in the economy now than before the crash in 2008 – in fact there is significantly more due to quantitive easing. Large companies are holding significant stores of cash on their balance sheets; there is also a great deal of money stored as investments in gold, real estate, art and antiques.
“Holding capital has significant risks as there is a danger of creating bubbles in gold, property and other assets which face a possibility of bursting or – if held as cash reserves – suffer devaluation due to high inflation or the collapse of banks. Sovereign bonds used to be a safe haven but the risk of default has changed all that.”
An index-linked carbon bond is a government-issued bond where interest payments are linked levels to a carbon target – levels of feed-in tariffs for renewable energy, emission certificate prices or actual greenhouse gas emissions of the issuing country. An investor in such a bond receives an excess return if the issuing country’s targets are not met – e.g. an extra percentage point of interest for each €1 that Co2 emission certificate prices are below target.
Evans says investors can hedge projects or technologies that pay off in a low carbon future because, if the low-carbon future fails to arrive, the issuing government winds up paying investors higher interest rates on government debt.
He said: “Index-linked carbon bonds eliminate the one risk that differentiates CleanTech projects from other energy propositions – the uncertainty of government policy actually being directed at a low carbon future. If governments tell the truth they get cheap money. If governments are not committed they pay.”
Evans also proposes that tax incentives similar to the EIS for private investors should be offered to corporates – but only for investments that are of strategic importance to the UK, such as CleanTech R & D.
A well funded Green Investment Bank is the third prong of his solution and Evans says a sensible government would use a significant proportion of capital raised through the sale of index-linked low carbon bonds to capitalise the bank.
The bank would co-invest with corporates in strategically important projects for which the Government is offering tax breaks.
Evans said: “This serves to further reduce risk for the corporates, offering a further incentive to investment. Another function would be to fix market failures such as the current funding gap facing CleanTech developers caused by poor appetite for risk by the VC community.
“By adopting my proposal the Green Investment Bank would be able to support UK SMEs, enabling them to develop competitive technologies and grow capacity to deliver the strategic projects. The resulting profits generated by these SMEs will provide additional tax revenues for the Treasury that can be used to pay down our national debt.”
Evans concludes that the capitalist system “is a fantastic tool for change.” He added: “The genius of the ideas presented in this document is that they link CO2 emissions to financial carrots rather than sticks. This results in a positive cycle of investment, profit and growth – reversing the prevailing collective sense of pessimism and fear that is resulting in the world recession we are now facing.”
Evans said there was a fantastic opportunity for the Coalition to roll out a UK blueprint that could be replicated globally but acknowledged that there needed to be co-ordination of the Treasury, BIS and the banking sector and buy-in from several stakeholder groups.
He suggests forming a specialist stakeholder working group to iron out detail. “Once the strategy is worked out to an acceptable level of detail, focus groups should be consulted consisting of CFOs of major, UK-based corporates to establish if there will be a demand for the bonds.”
• PHOTOGRAPH SHOWS: Michael Evans