A Green New Deal

The low carbon light at the end of a darkening economic tunnel

Like their Local Authority counterparts chastened by Iceland’s economic collapse, it is hard not to pity the poor pension fund manager charged with investing punters’ savings to provide an adequate and secure income over time. Property is out of the question, so too are even the bluest of blue chip shares on the interminably plunging stock market.
Yet there could be another far more secure, socially and environmentally beneficial haven for pension funds, which could also be of benefit to cash-strapped councils. Why not return to the widespread availability of local authority bonds? These were once used to build the civic infrastructure and utilities of our cities and indeed they were a common source of public finance until the Thatcher government, which heralded an era of constrained local financial independence and increasingly centralised economic control.

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Despite the lack of legal constraints on local authorities raising bonds, the practice has not been encouraged by governments since the 1980s. However, an important precedent was set recently when the Treasury authorised Transport for London (itself a local authority in legal terms) to issue £600m of bonds as part of its borrowings to improve transport infrastructure. The bonds were quickly snapped up by big investors. The USA has a $2 trillion municipal bond market. Apart from Transport for London’s (TfL’s) bond issues, such an approach is virtually non-existent in the UK. The idea of local authority bonds was resurrected some time ago by the People's Pensions report, published by the New Economics Foundation. It is also a central theme in their recent publication ‘A Green New Deal: Joined up policies to solve the triple crunch of the credit crisis, climate change and high oil prices’: (see www.neweconomics.org) This initiative is extremely timely given today’s rising unemployment and business collapse occurring in the wake of the credit crunch. The investment of even a small part of the at least £1trillion in UK private pension into such bonds could result in a substantial reversal of the downward trend. The proven economic benefits of reducing energy use through efficiency, combined heat and power and renewables for buildings make it an excellent choice for funding by such local authority bonds. Part of the savings would fund the repayments due on such bonds.

This form of infrastructural investment is also crucial to reducing fuel poverty and tackling climate change, since buildings are responsible for 40% of the UK's carbon dioxide emissions. This approach could also provide a much more stable pension environment, thus encouraging people to put more money into their pensions, and helping to close the "savings gap" in the pension market.

Let’s imagine lead could be taken by the country's largest local authority, Birmingham, which has a proud history of the use of local authority bonds in developing the city in the last century. It is now the biggest landlord in Britain, owning more than 80,000 houses and flats. Many of these require repair and are energy inefficient. What’s to stop Birmingham city council following the example of Transport for London and launching a "Brummie bond"? This could fund a "carbon army" of local employees to crawl like ants over its entire housing stock and other council owned buildings into the 21st century, making them energy tight, warmer and cheaper to heat. Renewables such as solar electricity and water heating and larger scale combined heat and power systems would all provide business opportunities in the area.

Now is the time for local authorities and the pensions and savings industry to start lobbying for government encouragement of the widespread use of local authority bonds. Transport for London has shown the way, and this could give at least one section of the finance industry a chance to show social responsibility and a commitment to nurturing the real economy as well as the environment. This is just one of the policy proposals of the ‘Green New Deal’ report written by British finance, tax, energy and environmental experts and published by the New Economics Foundation. The report advocates tackling the unavoidable political problems of rising joblessness and a severe economic slowdown, in a way that arrests climate change and improves energy security. In addition, the Green New Deal report calls for the re-regulation of finance, fairer and greener taxation, and a massive £50 billion a year public and private spending programme to slash fossil fuel use and dramatically increase energy efficiency and renewables use in every building in the country. This could open up a huge range of new business opportunities in places where people actually live and will require the raising of a carbon army to fill the countless green-collar jobs. An all-encompassing programme, focusing initially on the goal of making ‘every building a power station’, would involve traditional energy-saving measures such as insulation through to large-scale combined heat and power and a greatly accelerated uptake of renewable technology.

These measures would generate highly skilled jobs in energy analysis, design and production of hi-tech renewable alternatives, and large-scale engineering projects such as combined heat and power and offshore wind. Lower skilled work would include loft lagging, draught stripping and fitting more efficient energy systems in all the UK’s homes, offices and factories. Finance specialists could retrain for the carbon finance sector that will be needed to devise, publicise and put into practice the range of funding packages proposed in the Green New Deal.

This hugely ambitious and transformational programme will of course require a legislative framework backed up by price signals to accelerate the shift to a low-carbon economy. Germany has already started down this path, by providing low-interest loans for older properties to reach new-build energy standards. Its feed-in tariff programme ensures that anyone generating electricity from solar photovoltaics (PV), wind or hydro gets a guaranteed payment of four times the market rate. This has created 250,000 jobs and demand is such that Bavarian farmers, with large barn roofs and fields, are now the biggest customer group for solar PV in the world. In the UK, a Green New Deal would mean higher carbon taxes (with adequate compensation for those in fuel poverty) and a price for traded carbon that is high enough to cause a dramatic drop in carbon emissions. Even more importantly there would be a huge increase in investment in energy infrastructure.

Public funding must be augmented by encouraging the use of the significant funds to be found in private savings from individuals, pension funds, banks and other savings vehicles to invest in a government-backed Green New Deal. Savings in banks and building societies are at present guaranteed up to £50,000, and such a guarantee could be extended to a Green New Deal investment. This would carry the proviso that such funds would be earmarked solely for investments that reduce carbon use. Savers could also be let off taxes on gains from investment in carbon-reducing infrastructure, as is the case for infrastructural investment in the US municipal bonds market.

Other avenues for citizens and institutional investors to provide funding for the Green New Deal would include investment in ‘green gilts’ (government bonds), guaranteed not just in terms of an interest rate, but also in terms of their use to reduce carbon. Kiddies Go Green/Families Go Green/Grandparents Go Green bonds could be introduced and revitalise the fusty national savings industry. Local authority bonds could be the major source of funding for this programme.

It is no coincidence that the Green New Deal is a modern translation of the politics of hope and pragmatism employed by Roosevelt in the 1930s. Then, as now, someone is needed to pick up the pieces of a system failed by short-termism and unenlightened self-interest.

Local Authority leaders should help fill this gap and recognise that the Green New Deal is a route map for tackling the triple crunch facing all sections of society; the credit slump, rising fossil fuel energy prices and the need to urgently tackle climate change. It should be put at the heart of national efforts to tackle the economic crisis and so transform today’s reality of energy insecurity, rising joblessness and economic decline into a future of increased environmental and economic security and energy self-sufficiency.

Colin Hines is the Convener of the Green New Deal Group and a Director of Finance for the Future