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This report builds on the conclusions of the Green Infrastructure
Finance: Leading Initiatives and Research report and lays out a
simple and elegant way in which scarce public financing can
leverage market interest in `greening' infrastructure, particularly
in the East Asia and Pacific Region. The framework introduced in
the report bridges ideas and concepts between environmental
economics and project finance practices and consists largely of an
analytical methodology for determining the financial viability gap
of low-emission projects and an approach for assessing and
strengthening the green investment climate in a given country
environment. The authors argue that the solution to the financing
challenge of low-emission investments lies in understanding the
causes of a given project's financial viability gap, and then
investigating how specific actions, including concessional
financing, strategic subsidies and other public policy
interventions and reforms, can be deployed in a complementary
fashion to close the gap. The approach provides suggestions for
appropriately allocating risks and responsibilities to various
stakeholders for financing portions of the financial viability gap
and recommends using multiple instruments and tools to make green
investments viable. Governments, for example, could rebalance their
own policy distortions with a mix of domestic instruments such as
feed-in tariffs, direct subsidies, domestic carbon taxes, and other
financing and fiscal incentives. The international community could
contribute international instruments for monetizing the global
externality benefits of green investments through concessional
financing and direct grants. Such an approach results in hybrid
financing structures designed to maximize the leveraging effect of
public interventions.
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