Chancellor George Osborne has confirmed that £3 billion will be provided towards a Green Investment Bank but that the bank will not be able to borrow until 2015/16.
In his Budget speech, Mr Osborne said that a carbon floor price of £16 per tonne for carbon emissions would be established by 2013, rising to £30 per tonne by 2020.
He added that the Green Investment Bank will be brought forward to operate from 2012 and that the carbon floor price would lead to billions in investment in the sector.
The Green Investment Bank will be allowed to leverage up to £15bn of additional capital.
A report produced by the Environmental Audit Committee last week emphasised the need for the GIB to raise its own finance and bring in banking expertise to offer loans, equity and risk-reduction finance.
Ernst & Young have warned that a GIB without the power to borrow could lead to a massive shortfall in spending on vital energy infrastructure.
Ernst & Young global head of tax policy, Chris Sanger said: “Green taxes have today provided some of the seeds to support the Chancellor’s green shoots. The creation of a carbon price floor and the changes to the Climate Change Levy, together with changes to tax relief for capital investments, provide a previously missing element in the Coalition’s agreement. As with all such incentives, the real question will be whether this changes business and consumer behaviour or just raise tax.”