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Local councils should "embrace the green finance revolution" and use Swedish-style green bonds to finance a low-carbon future for high streets and town centres, a new report says.
The Social Market Foundation said there was "untapped potential" for councils to issue their own green bonds as a means of funding local net zero projects such as installing electric vehicle charging points and district heating networks.
The cross-party think-tank recommendations follow the Chancellor’s announcement that the Treasury will sell £15bn of green savings bonds for day-to-day savers later this year.
In a report on the environmental future of high streets and urban centres after the pandemic, the SMF said local authorities need far greater powers and flexibility to raise capital and revenue for local projects to help tackle climate change.
The report argues the UK can learn from Sweden, where municipal green bonds issued by local authorities now make up 10% of the Swedish krona bond market after launching in 2013. Swedish green bonds have helped fund major carbon cutting projects including the extension of the Stockholm Metro, that have eliminated 40,000 tonnes of CO2 emissions since 2017.
The SMF said there was demand for green bonds among investors, who are often willing to accept a lower rate of interest on loans where the money lent is ringfenced for sustainable projects. English councils should take more advantage of this “greenium” to borrow cheaply, the SMF suggested.
The UK’s first local green bond was last year issued by West Berkshire Council, which is borrowing money to fund solar panel installations on council-owned properties. The bond is designed to minimise risk for individual savers, with the borrowed capital used to fund a local green project but returns based on the financial health of the council.
The SMF made its recommendations in a new report supported by international law firm DAC Beachcroft. The SMF retained editorial independence.
Local authorities can influence around a third of all emissions in their area, the report says, but disconnect between Whitehall and councils meant local officials were not able to deliver change as effectively as they could.
Siloed working and a lack of decisive leadership from local and central government was also leading to resentment of some green policies like Low Traffic Neighbourhoods, the SMF warned.
The think-tank said climate change meant tough changes to how residents live but politicians needed to “hold their nerve” and be clear on why a shift to a greener future is necessary.
Action is also needed on the dearth of revenue raising powers available to local councils to finance net zero projects. OECD figures show just 5% of total tax revenue in the UK comes from sub-central government, compared with 14% in France, 32% in Germany and almost 50% in Canada.
Scott Corfe, Research Director, Social Market Foundation, said: “Shifting to more climate-friendly behaviours isn't straightforward and that gets even harder if local actors aren’t properly resourced to make it as easy as possible for people to go green.
"Councils are well-placed to deliver the infrastructure needed to catalyse this transition and our research suggests new financial powers for local authorities can make that a reality.
“Green bonds could be a first step on the journey to greener local communities and Sweden provides us with a proof of concept. This needs to be accompanied by a decisive stance from political leaders on why implementing local green initiatives is vital if we want to reach net zero."
Christopher Stanwell, Partner, Head of Planning, DAC Beachcroft, said: “Technology has a significant role to play as innovative ways are developed to use alternative power sources, to champion new forms of transport and measure effectiveness. Innovation also needs to be applied to create approaches that bolster local economies and build a sense of community and partnership.
“Collaboration, support and clarity are also critical to making a leap forward.
"An increased number of green partnerships and green alliances would support locally based private/public associations that develop practical, popular approaches that meet green ambitions and help improve co-operation for harder to implement measures."