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A Public-Private Partnership (PPP) Approach to Climate Finance

March 13, 2013

The World Bank

A new World Bank report, “A Public-Private Partnership (PPP) Approach to Climate Finance” offers an approach to address key financing challenges to accelerate investments in low-emission projects.

Green investments are often risky, costly, and require more capital up-front. In many countries, they are also disadvantaged by subsidies for fossil fuels. Improvements have been made, but investments in clean technologies are still insufficient to curb the effects of climate change, making it necessary to re-think how to green the global energy mix.

Building on earlier Green Infrastructure Finance studies – “Leading Initiatives and Research Report” and “Framework Report – the new report presents a practical approach that can be replicated in many countries.

Key features of the PPP Approach to Climate Finance

  • Principles of project finance and environmental economics can be combined to lay out a simple, solid rationale for public support of low-emission projects;
  • Effective use of scarce public funds must be ensured to leverage private financing through an equitable sharing of responsibilities among different stakeholders;
  • Green growth can be supported by locking new investments into clean technologies, while displacing low-cost polluting alternatives;
  • Valuing and monetizing global and local environmental externalities as well as distortions created through fossil fuel subsidies needs to be given priority;
  • Sufficient support needs to be delivered to make low-emission projects bankable in an equitable and non-political manner;
  • A country’s policy environment should serve as the basis to help governments play a responsible role in creating a conducive investment climate and to level the playing field for low-emission projects;
  • A country’s public-private partnership framework of legally backed performance agreements and sanctions for non compliance needs to serve as the foundation to provide a credible and effective legal, regulatory & monitoring, reporting and verification system for reducing third-party risks.