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Fears that the Dutch government is about to pull the plug on green investment funds because of their popularity have been partly allayed by new measures designed to maintain investor confidence. But questions still remain about the future of a system which has been a major source of Dutch wind finance for five years.

In 1995 dividends on green funds were made tax free, signalling a huge wave of interest in ethical investing. As of next year, however, tax laws are to be radically revised. Instead of taxing investment returns, a fixed 2.3% levy will be slapped on investments, with green funds rumoured as being no exception.

The rumour led to a rapid decline in the rate of green investment and questions in parliament. Now the finance ministry has reconsidered its proposals. Initially it promised to exempt the first NLG 100,000 of green fund capital from the new tax. Now it has added that green investors will also be allowed to set 2.5% of their total green investment (to a ceiling of NLG 100,000) against income tax.

According to Thomas Steiner of green investment specialist Triodos Bank, taken together these measures mean that green investing "remains as attractive under the new regime as the old." But while investors are likely to notice little difference come January next year, those looking to the green funds for project finance -- including many wind project developers -- may be in for a shock.

Funds cap

Green funds, it seems, have proved far too popular for their own good, with the result that the finance ministry is now intent on capping the amount of lost tax revenue. From next year the ministry will be setting an annual budget for the amount it is prepared to lose annually to green funds. "Currently that ceiling is set at NLG 75 million," says Seger Pijnenburg of market leader Rabobank's green funds division. "Unfortunately that translates into some NLG 400 million of green finance, while the total finance available from all green fund investments is something like NLG 1.1 billion."

The ministry says the annual budget will be open to negotiation and more revenues may be discounted, but there needs to be a stricter definition of what counts as a green project -- with a distinction being drawn between dark and light green ventures. "It's just possible," cautions Pijnenburg, "that wind will no longer qualify for green funding," although there is no indication it will be excluded. Steiner is confident wind will remain a beneficiary of the scheme, even though Triodos Bank no longer operates a separate wind fund.

Qualification may become a secondary issue, however, with too many well qualified projects fighting for limited resources. Steiner estimates that demand for green capital today exceeds supply by some NLG 3.7 billion.