The Problem: Climate change is a threat and requires more commercial solutions for clean energy and carbon removal from the atmosphere.
The Solution: The UK government uses some of its pension contributions to create a clean economy sovereign wealth pension fund.
We’re likely all aware of the threat of climate change and the need for technological solutions to make renewable energy mainstream and increase electric vehicle travel. What is not often spoken about is the money to be made by those businesses that succeed; renewable energy and electric vehicles offer the same massive revenue potential as oil has brought over the past decades. Investing in these technologies and becoming world leaders offers enormous financial benefits, while also helpfully averting the threat of climate change.
Taking inspiration from Norway’s sovereign wealth fund, which is built on the revenues from oil and gas, I propose the UK government creates its own sovereign wealth fund to develop and grow clean economy businesses. The fund would provide the investment capital to help British clean businesses grow, helping to attract the talent and skills needed for the new economy so that the country becomes a world leader in the field.
By financing a sovereign wealth fund, the gains from that business growth can be captured more effectively by government and then distributed to the people, making the case of fighting climate change about putting money in people’s pockets, not just reducing carbon, a much more effective pitch.
The UK purse strings are rather tight at the moment, however, so finding the funding seems difficult. That is where the pension fund comes in. The fund would be created from the tax relief given to British workers pension contributions. Instead of paying this money into individuals’ pension funds, they would be given a credit and the money would be paid into the UK clean economy sovereign wealth fund.
With around 30 million people working in the UK, taking just £100 of the several hundred pounds of tax relief they receive, would provide £3 billion per year and £30 billion in just ten years. That money would then be invested in (primarily) British businesses working in the clean economy, taking an equity stake that will grow in value over time.
The fund would attract talent into the UK and provide finance to develop clean economy businesses, while also growing to increase in value and provide further benefits to British people. And the money in effect comes out of thin air – instead of being invested in a personal pension pot, it is invested in the government fund.
The UK gets vital finance to become a world leader in future technologies and the people get extra finance in their pensions, at no cost to anyone (the wealth fund could fail, of course, but it would only be a small portion of the pension, which could lose value if it was invested elsewhere anyway).
As the cost of pensions rises, it is vital that the government has alternative sources of revenue to finance pensions; this fund could do that.
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