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Analysis
Time for a new European green bank

Time for a new European green bank

Calls to fill carbon-free investment gap

by Denis MacShane in London

Wed 3 Apr 2019

The European Bank for Reconstruction and Development is one of Europe's most successful banking ventures. Thirty years since it was founded, perhaps the time has come for a major new European (but not European Union) bank devoted to encouraging private sector investment in clean energy, combating climate change, and biodiversity.

The UK tried in 2012 with its Green Investment Bank, the brain child of Liberal Democrat ministers in the 2010-15 coalition government. It didn't survive the arrival of Prime Minister Theresa May and the overwhelming impact of the UK's EU exit on all government activity since July 2016. The GIB was sold off in 2017 to the Maquarie Group, the Australian financial services giant. The UK's public accounts committee criticised the terms of sale, saying the way the bank was sold off meant it would no longer support the country's climate change ambitions.

Step forward France, where a group of economists and politicians including former prime ministers, headed by environmental activist Pierre Larrouturou, have come up with the idea of using a new bank and the private sector to encourage investment in climate change projects.

At a packed meeting in Paris, former French prime ministers Alain Juppé and Laurent Fabius, along with other top figures in French public life, urged President Emmanuel Macron to make the creation of a European Bank for carbon-free economic investment a top EU policy goal.

In 1989, François Mitterrand and Helmut Kohl, then leaders of France and Germany respectively, took just six months to set up the EBRD. This was in response to the urgent need to get investment and private sector business energised and operational in former communist countries in Eastern Europe, who were emerging into freedom after the fall of the Berlin Wall.

The ERBD is based in the City of London, with 3,000 employees and €130bn invested in more than 5,000 projects. It is not an EU-controlled operation; the US is its largest shareholder.

By taking part in setting up the new bank, the UK could be involved in wider European policy after Brexit. As Downing Street contemplates the future relationship between Britain and other European nations – both the EU27 and the 47 member states of the Council of Europe – linking up with Paris to work on this new bank would be smart thinking.

Economist Nicholas Stern estimates that countries need to spend up to 2% of national GDP on investing in climate change initiatives to meet any of the United Nations' targets. Just moving to electric cars or equipping homes with better insulation and double-glazing constitute multi-billion-pound projects. They are particularly urgent in new EU member states in East and Southeast Europe.

Leaving it to individual citizens to make personal investment decisions won't work. There will be costs as workers in carbon energy sectors like coal are phased down, but modest estimates put the EU-wide job creation in this sector at 5m-6m jobs.

Unless private sector firms know the credit is forthcoming and guaranteed – as was the case with investments promoted by the EBRD after 1991 – they will be reluctant to invest.

Last month, Macron argued that 'the EU needs to set its target – zero carbon by 2050 and pesticides halved by 2025 – and adapt its policies accordingly with such measures as a European Climate Bank to finance the ecological transition.'

As the EU leaders seek some way to reconnect to next generation voters, the creation of a European Bank for Climate Change is as good a way as any.

Denis MacShane is the UK former Minister of Europe and a Member of the OMFIF Advisers Network.

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