OECD Environment Working Papers
This series is designed to make available to a wider readership selected studies on environmental issues prepared for use within the OECD. Authorship is usually collective, but principal authors are named. The papers are generally available only in their original language English or French with a summary in the other if available.
Mobilising Investment in Low Carbon, Climate Resilient Infrastructure
This paper addresses several broad issues for governments aiming to encourage private sector investment in low-carbon climate resilient (LCR) infrastructure, in both developed and developing world contexts. LCR infrastructure is defined, recognizing the interdependencies between infrastructure systems, and the opportunities to tackle climate change adaptation and mitigation simultaneously in national strategic infrastructure plans. Review of the performance of OECD countries in reducing greenhouse gas emissions related to three categories of gross fixed capital formation is mixed. Half of the countries analysed achieved decoupling of emissions from capital formation in the residential building sector, but only two in the transportation sector and nine in power and industry. The paper reviews future global infrastructure needs under low carbon and business-as–usual scenarios. Although cost estimates are incomplete, the technical interdependency and financial tradeoffs between infrastructure systems suggests the potential to generate virtuous cycles of low carbon growth.
Governments can encourage private investment in LCR infrastructure by improving the risk-return profile of projects. The paper provides a ranking of the most significant risks in financing LCR projects showing that policy (or sovereign) risks rank amongst the highest. The potential to finance LCR infrastructure in low income nations is challenging due to basic banking services, lack of non-bank financial services, weak risk management capacity and limited availability of long term funding. Drawing on OECD?s work on the water sector, the paper reviews financing mechanisms that help to increase access to commercial banks, bond finance, project finance and equity finance in developing countries. Green bonds are an example of a financing mechanism with strong potential for LCR infrastructure in developed countries, but supportive government policies are required. The paper concludes by considering governance arrangements that can enable and secure private engagement in LCR infrastructure investment, including public private partnerships (PPPs). Where governments have opted to use PPPs, government PPP units may be suitable administrative units for managing delivery of LCR performance as an integral part of the infrastructure project.
Keywords: risk, development, finance, low-carbon growth, climate change, private investment, infrastructure, public private partnerships, gross fixed capital formation
O: Economic Development, Innovation, Technological Change, and Growth;
G: Financial Economics