The advent of an independent Green Investment Bank will be a major step forward for a government that claims to be the greenest ever. It comes at a time when, hopefully, electricity market reforms (ENDS Report, December 2010) will unleash a £200bn low-carbon energy infrastructure investment programme by 2020.

Especially welcome was deputy prime minister Nick Clegg’s 23 May confirmation that the bank will be able to borrow, eventually. Without this facility, it would be little more than a fund, making only a marginal impact on low-carbon investment. Mr Clegg’s announcement suggests earlier attempts by the Treasury to stifle the initiative have thankfully been fought off.

But the bank has not yet escaped the ravages of Treasury interference. There is a ban on borrowing until 2015, and even then, it will only be permitted if public borrowing as a proportion of GDP has declined. But the Treasury and business department (BIS) have declined to define precisely what test will need to be passed to get the ban lifted.

Many of the largest Round II offshore wind projects already in the late planning stages, such as the second stage of the London Array, have yet to secure finance, and their ambition could still be limited as a result. A number of energy utilities and project developers have told ENDS that they would be unable to fund the largest Round III offshore wind farms from their balance sheets alone.

That still leaves would-be investors and developers with considerable uncertainty in the interim, as they seek to plan investments that will last decades but which must commence almost immediately. As a result, many have already written off the GIB in their upcoming plans and only see the bank as having a serious role in the next tranche of investments beyond 2020, including Round III projects.

But any delay to low-carbon investment could be serious, as Britain struggles to meet its new 50% greenhouse gas emissions reduction target by 2027. Meeting the target will depend heavily on decarbonisation of the power sector (ENDS Report, May 2011). In short, the GIB’s timelines for full operation need to be more synchronised with market reform and UK carbon budget imperatives. There needs to be a clearer signal to influence investors now and to prevent an interregnum in investment.

The government also needs to fully recognise that green infrastructure investments are an economic benefit rather than a cost. The GIB could give real substance to its ceaseless rhetoric over a green economic recovery, pushing the UK back up the international clean technology league table.

It also remains unclear which kind of investment products will be available, with many decisions still to be made. Before 2015, targeted debt financing and equity co-investment of the GIB’s £3bn start-up capital will predominate, levering in perhaps another £15bn of private capital. That is significant, but hardly game-changing. After 2015, it is still unclear precisely what borrowing mechanisms will be available, and whether these will explicitly include green bonds.

There has been much criticism of the government’s focus on new capacity, to the detriment of cost-effective and more sustainable energy efficiency initiatives. For example, the controversial and seemingly last-minute inclusion of nuclear power as a potential later beneficiary could easily crowd out both energy efficiency and renewable investments. So the early prioritisation of business energy efficiency, together with offshore wind and sustainable waste management, is to be welcomed.

Another welcome shift is business secretary Vince Cable’s acknowledgement that the Green Deal for domestic energy efficiency upgrades could be included in the GIB’s remit – albeit only if private sector involvement alone fails to deliver. Better still would be a recognition, from the outset, that the only way to economically fund vast numbers of small scale upgrades with very long payback periods is with the GIB’s involvement. That is the lesson from Germany’s impressive KFW state bank-led programme. We ignore it at our peril.