Image caption Traditional sources of funding would be insufficient to meet climate targets, MPs heard

The UK could lose out on hundreds of billions of pounds in green investment and fail to meet climate change targets if the government compromises on its Green Investment Bank, MPs have warned.

The Environmental Audit Committee said the bank must be free to raise additional capital from investors.

The government has pledged to establish the bank with £1bn of capital to fund clean energy and low-carbon projects.

Concerns are growing the coalition could water down its plans.

These also involve placing unspecified proceeds from the sale of government assets into the bank.

The MPs said there have been reports of disagreement within the government about whether the Green Bank should be a fully-fledged investment bank, with the ability to borrow money and raise capital, or simply a fund.

There are concerns that if the Office for National Statistics classifies the bank as public sector it could undermine the government's deficit reduction strategy, the committee said.

"Setting up a Green Investment Bank without the power to borrow would be a bit like trying to buy a house without first getting a mortgage offer," said Joan Walley, chair of the committee.

"George Osborne has got the deposit, but if he doesn't allow the bank to raise extra capital, the sums are going to fall far short of what is needed."

'Significant'

Business Secretary Vince Cable said he also wanted the Green Investment Bank to grow into a "significant institution", which would help to promote economic growth.

"We agree with the committee that the Green Investment Bank should be an enduring bank, which takes investment decisions at arm's length from ministers and be able to reinvest the proceeds from its investments."

He said his department was looking at european state aid rules and would announce its plans for the bank's role by the end of May.

Environment campaign group Greenpeace called on the government to act sooner and outline its decision in the Budget later this month.

"A clear announcement is needed at the Budget so investment can start to flow into Britain's clean energy industries, which would drive the sustainable growth and jobs that are so badly needed in our country," said executive director John Sauven.

'Massive potential'

Evidence given to the committee suggests the UK will need to raise between £200bn and £1 trillion over the next 10 to 20 years if it is to meet the government's climate change and renewable energy targets.

Traditional sources of private fundraising are only likely to deliver between £50bn and £80bn, accountants Ernst & Young told the committee.

"A proper green investment bank... is the shot in the arm the UK economy needs," said Ed Matthew of campaign group Transform UK.

"The only cost the Treasury should consider is the cost of failure to unleash this institution's massive potential to re-power our economy."

The previous Labour government committed the UK to reduce its carbon emissions by 80% on 1990 levels by 2050, and for 20% of all electricity consumption to come from renewable energy sources by 2020.

The coalition government has said it backs the targets.

Most scientists agree that without dramatic reductions in carbon emissions, global temperatures will continue rising to dangerous levels.

The direct and indirect impacts of these higher temperatures, research suggests, could cost the global economy hundreds of billions of pounds a year.