Green Finance Institute (GFI) analysis indicates that £150bn of gross capital investment is needed by 2030 to support the transition to electric vehicles (EVs). The finance is needed both to boost the uptake of new vehicles through consumer finance, and to support the rollout of essential charging infrastructure. It is both unrealistic and unnecessary for all that money to come from the public purse, the GFI suggests.
Instead, the GFI argues the funding gap should be seen as a huge opportunity to crowd in private investment. New financial mechanisms will be needed that use public capital to de-risk private sector investments. By exploiting such mechanisms, the government would mobilise much-needed funding for the decarbonised transport system that comprises a critical component of its net-zero ambitions.
Lauren Pamma, Programme Director at the GFI, said a comprehensive package of measures including innovative financial mechanisms, regulation and a thorough understanding of data requirements was needed to kickstart investment pivotal to changes in consumer behaviour.
Pamma described the “chicken and egg” situation where the relatively low uptake of EVs was supressing private sector investment in charging infrastructure. “Investors can’t see any certainty of returns, but until the infrastructure is there, people won’t switch to an EV because they can’t see enough infrastructure. At some point someone has to lay an egg,” Pamma says. “Either you have to find solutions for consumers to get those EVs or someone has to put the charging infrastructure in and hope that catalyses demand.”
ACA-qualified Pamma said the GFI’s role was to bring together people from across finance, industry, local and central government, and academia to understand financial blockages at a very granular level and to develop solutions that will unlock the necessary money.
“Where we sit is between public and private sector finance. Where we think the private sector should be moving in we ask why they aren’t and what data, regulations or innovative finance mechanisms could we develop, so that private capital is mobilised into areas where there is a market failure to date,” Pamma explains.
The GFI’s Coalition for the Decarbonisation of Road Transport, which Pamma leads, has identified around 18 potential mechanisms to help unlock capital, and is preparing the groundwork to bring these solutions to pilot stage.
Despite ambitious government pledges for the decarbonisation of transport that will see sales of new petrol and diesel cars end in the UK by 2030, the issue of charging – known as ‘infrastructure availability anxiety’ – remains a concern for consumers. Research conducted by YouGov on behalf of Siemens Mobility found that a quarter of adults who said they would use an electric or hybrid vehicle were worried about the availability of charging points.
Upfront purchase cost is a further barrier in need of solutions. The EV equivalent of an average volume hatchback is 73% more expensive, and around 20% more expensive at the premium end. Pamma explains that this upfront cost can mean EV’s seem unaffordable, even though the lifetime operational costs, including fuel and tax, are cheaper.
“Even though 92% of new cars are bought using consumer finance solutions, buyers see the list price and think it’s unaffordable. They don’t easily see the total cost of ownership, which can be at parity with a petrol or diesel equivalent.” And while there are various challenges to the transition to EVs, it is important to get the finance right, Pamma adds. “Finance is not the silver bullet but nor should it be a blocker.”
While investor interest in solving these issues specifically, and green projects more broadly, is undoubtedly growing, it is paralleled with growing concern about ‘greenwash’. Green taxonomies are one mechanism that seeks to address this by defining what counts as a green investment. The GFI is chairing the government’s Green Taxonomy Advisory Group (GTAG), working to develop a green taxonomy for the UK. Pamma believes this will help galvanise investment: “It means investors will be able to say, I’m genuinely financing the right thing here and I’m putting my money in the right place.”
At the same time, GFI’s Green Finance Education Charter brings together professional bodies including ICAEW in a commitment to integrate green and sustainable finance principles into the education and training programmes of finance professionals worldwide. This will help to further embed green finance into the financial lexicon, Pamma believes.
“It’s about getting members to engage on climate change and environmental issues, encourage the adoption of relevant national standards, engage employers and encourage the take-up of sustainable finance programmes of initial and continuing professional development. It’s going to take time but if we all do our job right, green finance will just be finance.”
- Read the government’s ambition to make the UK the best place in the world for green and sustainable investment in its Greening Finance report.
· Read more about the work the Green Finance Institute is undertaking here: www.greenfinanceinstitute.co.uk
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