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CHAPTER INNOVATIVE FINANCING
2 FOR LOW CARBON
DEVELOPMENT
2.1 Introduction 3.2
Financing sustainability (including low carbon development) is
arguably the most critical challenge of this century. The difficulty
of this challenge has been greatly augmented in the wake of serious
global macro-economic imbalances. While macro-economic decisions
(including banking) come from the policy side, the finance decisions
come from the investment side. When it comes to sustainability
issues, synchronization of macro-economic and finance decisions have
become fairly arduous. Macro-economic and banking regulations are
moving towards safety; ironically, these regulations are impeding
investments in sustainability. For instance, the forthcoming Basel
III rules (for banking) may significantly limit the ability of financial
institutions to provide long-term, non-recourse project finance which
is considered unsafe in banking parlance but are quite important for
renewable energy projects to begin. Tax regimes in various countries
are also not helpful for financing sustainability.
Typically, sustainability projects (say, developing sustainable
habitats or green buildings) are attributed with high initial capital costs
which are usually offset by lower operations and maintenance (O&M)
costs; however, in various economies, tax rebates are available for O&M
costs but not for the initial capital costs. All these issues make financing
sustainability extremely challenging. It can also be understood that
making money available for sustainability in an effective and efficient
method is not only a decision in finance but also of macro-economics.
Following the global economic crisis in 2008, many governments
announced stimulus measures for their countries. These included sets
of policies to stimulate the private sector, boost consumer demand
for goods and services, and provide greater public investment in
various sectors. Sizeable portions of these stimulus packages were
directed at environmental goals, particularly the reduction of GHG
emissions. China’s National Development and Reform Commission
announced a variety of green stimulus measures. Over one-third of the
massive Chinese stimulus package and nearly 27 per cent of the 2009
Chapter 2 Innovative Financing for Low Carbon Development 243
2 FOR LOW CARBON
DEVELOPMENT
2.1 Introduction 3.2
Financing sustainability (including low carbon development) is
arguably the most critical challenge of this century. The difficulty
of this challenge has been greatly augmented in the wake of serious
global macro-economic imbalances. While macro-economic decisions
(including banking) come from the policy side, the finance decisions
come from the investment side. When it comes to sustainability
issues, synchronization of macro-economic and finance decisions have
become fairly arduous. Macro-economic and banking regulations are
moving towards safety; ironically, these regulations are impeding
investments in sustainability. For instance, the forthcoming Basel
III rules (for banking) may significantly limit the ability of financial
institutions to provide long-term, non-recourse project finance which
is considered unsafe in banking parlance but are quite important for
renewable energy projects to begin. Tax regimes in various countries
are also not helpful for financing sustainability.
Typically, sustainability projects (say, developing sustainable
habitats or green buildings) are attributed with high initial capital costs
which are usually offset by lower operations and maintenance (O&M)
costs; however, in various economies, tax rebates are available for O&M
costs but not for the initial capital costs. All these issues make financing
sustainability extremely challenging. It can also be understood that
making money available for sustainability in an effective and efficient
method is not only a decision in finance but also of macro-economics.
Following the global economic crisis in 2008, many governments
announced stimulus measures for their countries. These included sets
of policies to stimulate the private sector, boost consumer demand
for goods and services, and provide greater public investment in
various sectors. Sizeable portions of these stimulus packages were
directed at environmental goals, particularly the reduction of GHG
emissions. China’s National Development and Reform Commission
announced a variety of green stimulus measures. Over one-third of the
massive Chinese stimulus package and nearly 27 per cent of the 2009
Chapter 2 Innovative Financing for Low Carbon Development 243
