The Green Investment Bank’s first year: Coal, big biomass and lessons for climate campaigners

Since the Green Investment Bank (GIB) was launched in November 2012, NGO criticism has focussed on its lack of borrowing powers and thus the limits to its ability to finance low-carbon and sustainable developments.

After the 18 months of, albeit limited, GIB ‘clean energy’ finance – do independent borrowing powers and scaled up lending capacity really seem such a good idea? Has it proven itself as the green, clean and sustainable bank it claims to be? And what does the experience so far mean for wider campaigns that promote massive private-sector investment in a UK ‘green economy’?

According to the bank’s first Annual Report, they committed to funding 11 projects, which they expect to reduce the UK’s carbon emissions by around 2.5 million tonnes of CO2. Not a bad start, it seems, for a bank that is not allowed to borrow and that has been allocated just half of what a prior consultancy study showed was needed from the government for the GIB to be effective. Not bad, that is, until a closer reading of the report shows how those supposed carbon reductions are attributed. Over 91%, it turns out, are attributed to a £100 million loan to Drax,[1] which is in the process of converting the first of three units from coal to biomass. The other three units will continue to run on coal. The Green Investment Banks claims in their Annual Report: “Converting coal to sustainable biomass provides substantial GHG emissions savings by displacing the dirtiest fuel with biomass.” They ought to know better.

The GIB, Drax and big biomass

In order to generate half their electricity from biomass, Drax will have to burn pellets made from almost 16 million tonnes of wood every year – the equivalent of 1.6 times the UK’s entire annual wood production. The company paints itself as a pioneer of ‘sustainable biomass’, using agricultural, forestry and process residues to generate low-carbon energy, knowing full well that those claims are misleading – and not just because the scale of the new demand which Drax and other UK energy firms are creating far exceeds the availability of residues. As a Biofuelwatch Freedom of Information request to DECC revealed in May, their own tests, concluded in early 2012, showed that converted coal power station units can only burn pellets made from slow-growing trees with low bark content. Other types of biomass – including most wood residues, which are high in bark – corrode the boilers[2]. Drax thus has to rely on wood from whole-trees from boreal or temperate forests and tree plantations. Study after study shows that the climate impacts of burning wood from whole trees is anything but benign – in fact, the carbon emissions will be even higher than those from generating the same electricity by burning coal for at least one or two generations. Smokestack CO2 emissions from biomass power stations are higher than those from coal power stations because wood is less energy-dense than coal, hence more of it needs to be burned for the same energy output. It takes minutes to burn a tree and decades for a new one to grow in its place. And when forests are clearcut (i.e. uniformly cutting all the trees in an area) and converted to monoculture tree plantations and carbon rich soils are damaged or destroyed, the carbon released will stay in the atmosphere indefinitely.

When questioned, the GIB deflected all questions about the climate impacts of big biomass by pointing to government policy – even though they make their own independent decisions on who to fund. Nor did the GIB express any concerns when a BBC investigation, revealed that some of the pellets produced by Drax’s main US supplier have come from clearcut ancient swamp forests in the southern US.

So far, so bad. In May, Secretary of State Vince Cable confirmed that the GIB loan did not help Drax to replace coal with wood – it helped them to keep the power station open rather than having to shut it in 2016 under EU air quality rules.[3] Although overall biomass burning is as polluting as coal burning, it releases less sulphur dioxide and Drax, like many other UK coal power stations, is not equipped to meet the new EU SO2 standards without burning lots of low-sulphur fuel, i.e. wood.

At the GIB launch last November, Vince Cable declared: “It will place the green economy at the heart of our recovery and position the UK in the forefront of the drive to develop clean energy.” When the UK’s flagship project for a Green Economy helps the country’s biggest coal power station stay open, burn millions more tonnes of coal and fuel forest destruction in North America, something has clearly gone very wrong. And the fact that the GIB attributes 91% of its contribution to reducing the UK’s carbon emissions to Drax suggests that this particular loan was far from an accident or aberration. Indeed, they are currently looking at a proposal to fund one of Scotland’s most controversial proposed biomass power stations in Grangemouth, which would see another 1.5 million tonnes of imported wood burned every year in an already heavily polluted town, where feelings against the plans run high. The company behind this proposal is Forth Energy, half owned by SSE whose Chair, Lord Smith of Kelvin, happens to also be the GIB’s Chairman.

The GIB and the corporate green economy

So far, no other GIB loan has been as questionable as that to Drax, yet other loans raise doubts as to whose interest the Bank prioritises. They have reported a £47 million loan for an ‘energy-from-waste’ project in Gloucester without revealing any details, though the wording suggests that this was likely for waste incineration. And a £30 million loan for a waste PFI project in Yorkshire appears to support the Government’s drive for privatising local authority waste services regardless of the evidence of high costs and risks from such an approach.

There are no assurances that greater funding and future borrowing powers for the GIB would not end up funding more coal power stations slated for closure to stay open or re-start by burning coal and biomass, as well as new biomass power stations that fuel deforestation and more waste incinerators. There is nothing in the legislation that enshrines the GIB into statute to prevent it from boosting corporate profits while harming climate, environment and communities through their funding decisions. For example, the GIB has five basic ‘green purposes’ against which, one would assume, any bank calling itself green would test each investment – reducing emissions, advancing efficiency, protecting and enhancing the natural environment and biodiversity, environmental sustainability. But no – each investment has to meet just one of those basic principles. Trashing the environment and destroying biodiversity is permitted if the efficiency box is ticked.[4] The second requirement is that the Secretary of State must be satisfied that the GIB’s overall activities contribute to reducing greenhouse gas emissions. With a nod from Government, the GIB is thus free to fund forest destruction and continued coal burning and call it ‘emissions reductions’.[5]

Lessons for climate campaigners

How could it all go so wrong for a bank which environmental NGOs had played a crucial role in bringing about – including NGOs such as Friends of the Earth who have strongly opposed big biomass investments that depend on whole trees and imports, such as Drax’s, as well as waste incineration? And what should the lessons for climate campaigners be?

Especially since the start of the 2008 financial and economic crisis, much of the discourse around climate change in the UK has focussed on ‘green growth’ and ‘green jobs’ and on leveraging large-scale finance to build ‘low carbon infrastructure’ and a ‘green economy’. This is illustrated by the first concept note for the GIB, published by the environmental non-profit organisation E3G and investment management and advisory group Climate Change Capital: “Low carbon markets in renewable energy, energy efficiency and infrastructure have the potential to be a major building block for UK economic recovery and future growth. However, the current financial crisis has slowed growth in many of these sectors, with the renewable energy sector in particular seeing many viable projects stalled. Without a coherent UK green financing strategy it is unlikely that the private sector will be able to deliver the necessary investment to meet UK targets and realise the potential for economic growth and job creation in these sectors.” The GIB idea could never have been realised without a tactical alliance between NGOs and the renewable energy industry. This alliance has proven remarkably effective, considering the Government’s strong ties to and backing for fossil fuel investors. And with the TUC having been included from the outset, it has helped foster links between environmental campaigners and trade unions.

But while the case for a Green Investment Bank attracted widespread support, some important questions were missed. Firstly, the question of whether the renewable energy industry is indeed ‘greener’ than the fossil fuel industry. To those who associate renewable energy primarily with wind, solar and tidal power, the answer seems self-evident – of course such types of energy are better for the climate than burning coal, oil and gas. In reality, the vast majority of energy classed as renewable in the UK comes from burning biomass and biofuels, much of it at high cost to climate, environment and people. Crucially, the leading companies in the renewables and fossil fuel sectors are often the same. The UK’s biggest carbon emitters from fossil fuel burning – Drax, E.On, RWE and Eggborough – are co-financing the Renewable Energy Association’s biggest political campaigns over the past year – called Back Biomass.

Secondly, few questions were asked about the definitions of ‘renewables’, ‘sustainability’ and ‘low carbon development’ (although NGOs succeeded in excluding nuclear power from the GIB’s remit). Yet the UK’s and EU’s definition of ‘renewable energy’ is based on a political, not a scientific consensus. Hence clearcutting ancient American swamp forests for UK power stations passes as ‘renewable’. Terms such as ‘sustainable’ and ‘low-carbon’ are not legally defined at all– they can mean whatever the Government and industry groups – and in this case the GIB – wants them to mean.

The GIB’s first Annual Report surely calls for a serious review of what has gone wrong. Rather than calling for GIB borrowing powers and increased public funds, climate campaigners need to get back to basic questions: Who makes decisions about energy investments and how are those decisions made? Who decides what is renewable, low-carbon and green? Who will regulate ‘green bankers’?

Notes

[1] The GIB loan to Drax was subsequently reduced by £50 million after the Government agreed to underwrite a separate £75 million loan to Drax by Friends Life, see http://www.draxgroup.plc.uk/media/press_releases/?id=202763

[2] Note that this applies to all coal-to-biomass conversions but not to dedicated biomass power station boilers which can be designed to cope with high alkali salt levels.

[3] See this Financial Times article, which is behind a pay wall.

[4] The GIB is in the process of developing its own policies, including on sustainability, however they continue to be satisfied that Drax will meet them, even after evidence that links some of their pellets to the clearcutting of ancient swamp forests.

[5] This situation is exacerbated by the fact that, under UNFCCC rules, countries do not have to account for carbon emissions from bioenergy and that the UK’s Climate Change Act does not require any such accounting either. This ‘carbon accounting loophole’ has been heavily criticised by scientists, the European Environment Agency and others.


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