Models for the Roles of Government

 

Government’s role as an enabler of financing has been under-appreciated in discussions about climate investment. It has many options available to unlock private sector funding for climate change mitigation and adaptation.

Large-scale energy projects can become eminently fundable with institutional capital if steps are taken to reduce the risk profiles of projects and reduce the costs of making projects happen.

Government can reduce the risks of financing, either by issuing or guaranteeing bonds directly, by signing purchase contracts that allow companies to issue corporate bonds, or by providing implicit guarantees by being a cornerstone shareholder in a large renewable energy generation project. It could strategically use public procurement to boost mitigation efforts (as the Carbon Trust in the UK has been doing with energy efficiency). And it could remove distortionary policies (such as hidden fossil fuel subsidies) that work against new projects.

Richer nations might be called on to fund, as per existing World Bank schemes, partial guarantees for developing-nation projects.

Government can also reduce the costs of transactions for projects, by streamlining approvals processes for large renewable energy projects and cutting red tape; or designing energy efficiency schemes that collect whole cities into financeable projects, and facilitating the collection of loan repayments through utility bills or municipal taxes

One of the comments being made in the financial press is that international climate change negotiations and discussions have generally not included the investment sector. Given the role the sector needs to play in both mitigation and adaptation, this is unfortunate, and has perhaps contributed to the resilience of cost paradigms rather than thinking in terms of opportunities and returns. Involving the investment sector in the development of standards will be essential to their utility, and could promote their more active engagement in climate change discussions in general.