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Government urged to lead on green investment

Governments, including the UK and US, should set up and back policies to encourage the private sector to invest “record surpluses” in low-carbon and green innovation, a report by the London School of Economics' Grantham Research Institute on Climate Change has said.

The report, ‘A strategy for restoring confidence and economic growth through green investment and innovation’, was published on 16 April, ahead of a Washington meeting of G20 finance ministers on 19-20 April.

It warns that in many countries the private sector is failing to invest in green innovation because it lacks confidence about energy and environment policies. Governments of rich nations should therefore incentivise such investment by “themselves taking on elements of this policy risk”.

The report quotes figures showing that the private sector in both the UK and US has made big savings by cutting investment in recent years. In 2011, it says, the UK private sector generated such a surplus of £99 billion—around 6 per cent of GDP.

Governments therefore need to carefully choose instruments to restore investment confidence in green technologies, infrastructure and innovation, it argues.

Such policies, according to the report, include encouraging greater provision of research and development “where knowledge is a free good and ‘spill overs’ are large”.

Other ways would be to support the deployment of green technologies as well as backing innovation of new technologies “whose costs will only later come down as technology providers learn by trial and error”.

“In an environment in which the private sector is undertaking a dramatic deleveraging, such public sector leveraging through credible policy design can increase economic activity,” reads the report. “There is no lack of private money in the current market. However, there is a widely perceived lack of private sector opportunity. There is a rare and multiple opportunity that should not be missed.”