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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.
Increasing concerns over the effects of climate change have
heightened the importance of accelerating investments in green
growth. The International Energy Agency, for example, estimates
that to reduce carbon dioxide emissions by 50 percent by 2050,
global investments in the energy sector alone will need to total
US$750 billion a year by 2030 and over US$1.6 trillion a year from
2030-2050. Despite global efforts to mobilize required capital
flows, the investments still fall far short. Bloomberg New Energy
Finance argues that by 2020 investments will be US$150 billion
short from the levels required simply to stabilize CO2 emissions.
For the East Asia and Pacific region alone, the World Bank study
Winds of Change suggests that additional investments of US$80
billion a year over the next two decades are required. Multiple
factors affect green investments, often rendering them financially
not attractive. Private investment flows, therefore, depend on
public sectors interventions and support. As in many countries
public sector resources are scarce and spread across many competing
commitments, they need to be used judiciously and strategically to
leverage sufficient private flows. Many governments, however, still
lack a clear comprehensive framework for assessing green investment
climate and formulating an efficient mix of measures to accelerate
green investments and are unfamiliar with international funding
sources that can be tapped. To address this challenge, the World
Bank, with support from AusAID, conducts the work on improving the
financing opportunities for green infrastructure investments among
its client countries. This activity attempts to identify practical
ways to value and monetize environmental externalities of
investments and improve the promotion and bankability of green
projects. This research report, as a key step in this activity,
provides a structured compendium of ongoing leading initiatives and
activities designed to accelerate private investment flows in green
growth. It summarizes current investment challenges of green
projects as well as proposed solutions, financing schemes and
instruments, and initiatives that have set the stage for promoting
green growth. The results of this work are intended to benefit the
international community and policymakers who are seeking to deepen
their knowledge of green investment environment. In addition, it is
hoped that this work will be useful to practitioners, including
fund managers and investors, seeking to have a better understanding
of current trends, global initiatives, and available funding
sources and mechanisms for financing green projects.
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