ENDS Report 427, p. 61, August 2010.

The scene is set for a major battle over the shape of the green investment bank. The outcome will say everything about the prime minister’s commitment to a green government.

David Cameron promised “the greenest government ever”. Brave words. But it is not yet clear they will be matched by brave actions.

Turning blue into green was at the heart of the prime minister’s effort to restore his party’s electoral fortunes. Greenness is one of the central girders binding the coalition together. So it would be rash to write off this promise as just talk.

But actions will speak louder. So far, they have not been promising. Killing both the Royal Commission on Environmental Pollution and the Sustainable Development Commission on the same day was not a great start. Add in the rumoured plan to disembowel Natural England, and this is beginning to look like a government intent on stopping anyone knowing what is happening to the environment.

The previous government was far more adept at managing the headlines than the nation. All too often, once it had got the headline it lost interest in the issue. Hence the intense public suspicion that now greets any ambitious claim from ministers.

There are three things to be done this autumn that will help clarify the seriousness of the prime minister’s high ambition.

The first is an unequivocal statement that Natural England will remain an independent statutory adviser on biodiversity to the government. Second: without sufficient public funding for the demonstration plants for carbon capture and storage, Britain will be without a credible domestic climate policy. In the face of the current public expenditure constraints, this will only happen if Chris Huhne has the full and vigorous support of the prime minister. Third: publication of a parliamentary bill to create a green investment bank (GIB).

Of the three, the last is the most strategically important. Setting Britain on a fast track to a low-carbon economy is essential if the world is to have any prospect of dealing with climate change. Other countries will not take risks with their economies that we are not prepared to take ourselves. If we do not deal successfully with climate change, such other environmental progress as we might make will be, at best, temporary.

The idea of a GIB has secured unusually widespread support. Creating one will be a clear sign of the political will to build a low-carbon economy.

An independent commission was set up by the current chancellor when in opposition. Soon after the election this published an acclaimed report calling for the bank’s establishment. But before then, all three party manifestos had already promised to do so. Its formation is in the coalition agreement and was promised in the Queen’s speech.

All over by Christmas then? Sadly not. Treasury dislike of the idea is intense. Not that officials are saying so openly. Rather, in the obscurities of the bureaucratic trenches, they are fighting a vicious little war to kill it.

This is how it will be waged. First will be the argument that there is no real role for it. The problem is a shortage of viable projects not capital. Then it will be argued that existing funds dedicated to green energy can be bundled up into something that could be called a GIB.

These are but the Treasury’s preliminary skirmish lines. If ministers really want something more substantive than a mere rebadging of what is already happening, the really heavy bureaucratic artillery will be brought into action.

A long, drawn-out and tortuous battle will begin over the bank’s remit and structure. What exactly should be in its mandate? What should be its legal status? A formidable barrage of technical questions will be raised. They will all be presented as a thoughtful attempt to get it right. In reality, they are designed to wear down supporters of the idea and let events shift political and media attention to other issues.

If the idea survives this barrage, the full force of Treasury ordnance will come into action. It will be argued that both its borrowing and its lending must appear on the government’s balance sheet. The message to any minister still standing is that doing this will increase both the deficit and public spending.

If ministers persist, the bureaucratic equivalent of Little Boy will be deployed. Since no department has bid for the cash to capitalise the GIB, there is no money to subscribe to its capital. The only way to find the £2bn needed for a credible level of capitalisation from central resources would be to top slice other departments’ budgets. This move is intended to ensure that every permanent secretary in Whitehall advises their minister to oppose the creation of a GIB.

Winning this war will require real determination and attention to detail on the part of ministers. Should they succeed it will be apparent from four clear markers: the bank will have a mandate wide enough to finance any measure that will reduce carbon emissions; it will be established by statute – this matters a lot as it guarantees its independence of government and thus keeps its activities off the public balance sheet; it will have a full set of powers including the ability to issue green bonds; and its subscribed capital will begin at £2bn.

If any of these four conditions are not met then we will all know that ministers have lost and Treasury officials have won. Whatever the label says, there will not be a green investment bank inside the box.

The political reality is this: Britain will have a green investment bank if the prime minister really wants one. If he does not, we will have a Treasury-designed label occupying the space where a real bank should be.

We will also have answered two very big questions: the seriousness of the prime minister’s claim to be green and whether ministers or Treasury officials are really running the country.