A general view of the Bank of England (BoE) building, the BoE has confirmed it will hike interest rates to 1.75%, in London, Britain August 4, 2022. REUTERS/Maja Smiejkowska

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LONDON, Sept 2 (Reuters) – The Bank of England is expected to reconfigure a program to encourage banks to lend cheaply to small businesses to ensure capital-intensive green projects are not starved of investment as interest rates rise, a think tank proposed Friday.

The New Economics Foundation said green projects with high start-up costs – such as wind and solar farms, home insulation and electric car charging points – risk losing out on high-intensity business plans. of carbon that require less borrowing.

“Our ability to cut emissions fast enough to avert climate catastrophe and reduce our reliance on volatile oil and gas is threatened when interest rates rise. Cheaper targeted loans for projects that will take us away from dangerous fossil fuels should be a no-brainer,” said NEF economist Lukasz Krebel.

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The BoE has raised interest rates by 0.1% to 1.75% since December, and financial markets believe rates could hit more than 4% by the middle of next year.

Britain needs 140 billion pounds ($162 billion) of green investment between 2023 and 2027 to meet net zero targets, the NEF has estimated, based on data from the Office for Budget Responsibility and Climate Change Commission of the British government.

At the start of the COVID-19 pandemic, the BoE’s term funding program gave banks cheap four-year funding against collateral if they in turn lent more to small and medium-sized businesses.

More than £192 billion in loans have been granted under the scheme.

“We propose that the Bank, with the support of the Treasury, simply green the TFS, make it permanent and scale it up,” the NEF said.

One of the uses of a greener TFS would be to allow banks to issue interest-free loans to finance the renovation of buildings with heat pumps, solar panels and domestic wind turbines.

“To push interest rates on modernization loans towards zero, a combination of a negative interest rate charged to banks under the green TFS and partial loan guarantees by the Treasury, similar to pandemic programs , could be used,” the NEF said.

($1 = 0.8667 pounds)

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Reporting by David Milliken, editing by Andy Bruce

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