Call for Bank of England’s quantitative easing to boost low-carbon economy

Parliamentary committee investigates Green Finance

A Parliamentary committee looking into green finance has heard a proposal to get the Bank of England to divert some of its quantitative easing cash into sustainable financial projects.

The New Economics Foundation think tank explained to the Environmental Audit Committee that a new body should be created by the bank to put capital towards green finance.

This new entity – ‘the Monetary Allocation Committee’ – would sit alongside the interest rate-setting Monetary Policy Committee to allocate the proceeds of the quantitative easing programme.

“What we propose … is that they would use that funding to capitalise agencies such as the Green Investment Bank or the Business Investment Bank,” Josh Ryan-Collins, senior researcher at the foundation, told MPs in evidence last month. “You could achieve a massive upscale in what these agencies are currently doing in a very short space of time.”

The oral evidence follows written evidence to the committee in which the foundation calls for the “objectives, implementation and governance” of quantitative easing be reformed “to help fund the transition to a low-carbon economy”.

Its proposal is for the Bank’s Asset Purchase Facility to buy bonds issued by agencies with a specific remit for sustainable investment. It explained: “The use of a proportion of QE to fund long-term sustainableinvestment would be non-inflationary and in line with the Bank of England’s broader remit to support the government’s economic policy.”

Despite cross-party support for a national development bank and Green Investment Bank, the foundation argues the lack of a banking license and a reluctance to commit taxpayer funds will “severely limit” their impact.

It adds the institutions’ total capital of less than £4bn compares unfavourably with peers such as Brazil’s BNDES and Germany’s KfW.

The committee held a joint seminar with the City of London to help scope the Green Finance inquiry in June.

It is looking at the main drivers of institutional investors’ decision-making and the effectiveness of the financial markets in matching finance to renewable investment needs. The MPs also want to know about the risks of a “carbon bubble”.

Others giving evidence to the committee included Catherine Howarth (Share Action), Stephanie Maier (Aviva Investors), and Ian Simm (Impax Asset Management). The committee has also head from
James Leaton (Carbon Tracker Initiative), Nicola Ranger (Grantham Research Institute), Michael Liebreich (Bloomberg New Energy Finance), Donald MacDonald (BT Pension Scheme/Institutional Investors Group on Climate Change), David Russell (Universities Superannuation Scheme) and Shaun Kingsbury (Green Investment Bank).