The Green Investment Bank being set up by the UK government has been given the green light by the European Commission.

 

It ruled that the plan to lend for low carbon investment projects did not break Europe's state aid rules.

 

Permission to use £3bn of government funds has been given for four years but may be withdrawn after that if lending markets open up to low carbon projects.

 

It is conditional on lending only to projects that cannot find sufficient funding from commercial markets.

 

The commission in Brussels ruled that the Green Investment Bank concept had safeguards to avoid the crowding out of private investment and preserved a level playing field between competitors.

 

It also foresees the funding would be part of a partnership with private lenders or investors.

 

'Important milestone'

Green Investment Bank chairman Lord Smith said: "This is excellent news and a very important milestone as we transition to a low carbon economy and work to boost investment across the industry.

 

"We have already made significant progress in building our teams and the necessary infrastructure for the bank and we expect to be fully operational in the next few weeks.

 

"We clearly have challenges ahead but we have the people, the expertise and the capability to deliver on our priorities and create the foundation for a new climate of green investment."

 

The bank is headquartered in Edinburgh, and is intended to invest in innovative, environmentally-friendly areas for which there is a lack of support from markets.

 

The initial £3bn fund is to extend from 2015 to borrowing through financial markets.

 

That includes offshore wind power generation, waste-handling plants, energy efficiency measures, biofuels, biomass, carbon capture and storage, marine energy and renewable heat generation.