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2019 | Book

Handbook of Green Finance

Energy Security and Sustainable Development

Editors: Prof. Dr. Jeffrey D. Sachs, Wing Thye Woo, Prof. Naoyuki Yoshino, Prof. Farhad Taghizadeh-Hesary

Publisher: Springer Singapore

Book Series : Sustainable Development


About this book

This handbook deals with various financial instruments, policies, and strategies in a policy-oriented approach for financing green energy projects. Recently, global investment in renewables and energy efficiency has declined, and there is a risk that it will slow further, Clearly, fossil fuels still dominate energy investments. This trend could threaten the expansion of green energy needed to meet energy security, climate, and clean-air goals. Several developed and developing economies are still following pro-coal energy policies. The extra CO2 generated from new coal-fired power plants could more than eliminate any reductions in emissions made by other nations.
Finance is the engine of development of infrastructural projects, including energy projects. By providing several thematic and country chapters, this handbook explains that if we plan to achieve sustainable development goals, we need to create opportunities for new green projects and scale up the financing of investments that furnish environmental benefits. New financial instruments and policies such as green bonds, green banks, carbon market instruments, fiscal policy, green central banking, fintech, and community-based green funds are among the chief components that make up green finance.
Naoyuki Yoshino is Dean, Asian Development Bank Institute and Professor Emeritus, Keio University. Jeffery Sachs is Director, Center for Sustainable Development at Columbia University. Wing Thye Woo is Professor of Economics, U.C. Davis. Farhad Taghizadeh-Hesary is Assistant Professor, Waseda University.


Table of Contents



1. Importance of Green Finance for Achieving Sustainable Development Goals and Energy Security
In 2017, global investment in renewable energy and energy efficiency declined by 3% and there is a risk that it will slow further. Clearly, fossil fuels still dominate energy investments. This could threaten the expansion of green energy needed to meet energy security, climate, and clean-air goals. Several developed and developing economies are still following pro-coal energy policies. The extra CO2 generated from new coal-fired power plants could more than wipe out any reductions in emissions made by other nations. Finance is the engine of development of infrastructure projects including energy projects. Generally, financial institutions show more interest in fossil fuel projects rather than in green projects, mainly due to risks associated with these new technologies and their relatively lower rate of return. If we plan to achieve the Sustainable Development Goals (SDGs), we need to open a new file for green projects and scale up the financing of investments that provide environmental benefits through new financial instruments and new policies, such as green bonds, green banks, carbon market instruments, fiscal policy, green central banking, fintech, community-based green funds, among others. These instruments are known as “green finance.”
Jeffrey D. Sachs, Wing Thye Woo, Naoyuki Yoshino, Farhad Taghizadeh-Hesary

Financial Barriers for Development of Green Projects

2. Financial Barriers for Development of Renewable and Green Energy Projects in Asia
The expansion of green renewable energy has been very limited in all the Asian countries despite their various differences. The contributing factors are numerous, but the financial factor has been the major single one determining whether or not they opt for such energy. This is notwithstanding their awareness about the unsustainability of their fossil energy-dominated energy mixes both for environmental and economic reasons. The main culprit is Asia’s bank-dominated financial system with its underdeveloped capital market, which leaves Asian banks as the major source of funding for green renewable energy projects. Considering these projects as very risky with low rate of return on their invested capital, their reluctance to finance them has been the major barrier to the expansion of green renewable energy in Asia. Addressing the financing challenge is both possible and necessary to remove the barrier to green energy expansion in Asia.
Hooman Peimani

Green Energy Transition: Strategies and Financial Governance

3. Financial Strategies to Accelerate Green Growth
Green growth brings about economic development and environmental enhancement simultaneously. In order to support green growth financially, the green finance sector needs to be developed.
Funding and investment mechanisms of green finance differ from those of non-green finance because green finance needs to consider environmental value in the financial activities.
Public finance plays an important but limited role in supporting green growth because a huge amount of money is needed. Therefore, the role of private finance is essential. However, under the current private financial mechanisms, the green field is difficult to invest in because the risk and return profile is different from those of traditional industries. Therefore, green finance is needed. This chapter suggests strategies for developing green finance. These strategies include improving rules and regulations of green finance to encourage green growth, establishing green financial institutions, utilizing the Green Climate Fund, designing a code of conduct in green finance, developing new green financial products, integrating a global cooperative system, and setting up infrastructure.
Hee Jin Noh
4. A “Cap and Invest” Strategy for Managing the Intergenerational Burdens of Financing Energy Transitions
The investment required to meet the climate change commitments of the United Nations Framework Convention on Climate Change’s 2015 Paris Accord is on the order of $100 trillion over the next two decades. Reducing greenhouse gas emissions requires a strategy for managing risk that constitutes an intergenerational burden. This chapter proposes a “cap- and-invest” strategy for the build-up of necessary infrastructure to reduce greenhouse gas emissions consistent with national commitments. Cap-and-invest is in sharp contrast with cap-and-trade. An economy-wide general environmental tax on consumption creates a large pool of capital to de-risk investment in emerging low-carbon solutions to the threat of climate change. Innovation in governance is an integral part of the policy to leverage the capital markets through public-private partnerships in green financing.
Jatin Nathwani, Artie W. Ng
5. Central Banking, Climate Change, and Green Finance
Responsibility for financial and macroeconomic stability implicitly or explicitly lies with the central bank, which therefore ought to address climate-related and other environmental risks on a systemic level. Furthermore, central banks, through their regulatory oversight over money, credit and the financial system, are in a powerful position to support the development of green finance models and enforce an adequate pricing of environmental and carbon risk by financial institutions. The central topic of this chapter are the public financial governance policies through which central banks, as well as other relevant financial regulatory agencies, can address environmental risk and promote sustainable finance. The chapter first discusses the reasons why central banks should be concerned with aligning finance with sustainable development. Second, the chapter reviews the tools and instruments that can be utilized by central banks and financial regulatory agencies to address environmental risk and promote green finance and sustainable development. Third, the chapter provides a brief review of green public financial governance initiatives.
Simon Dikau, Ulrich Volz

Credit Risk and Credit Rating of Green Projects

6. Managing Credit Risk and Improving Access to Finance in Green Energy Projects
Cost of finance has a high impact on returns and viability of clean energy projects compared to fossil fuel-based energy projects because operating costs for renewable energy projects are very low. Cost of finance is significantly influenced by credit risk assessment and ratings, which has usually been an inappropriate measure of credit risk for clean energy finance. Factors like inadequate credit information, lack of historical data at the project level, and higher risk of technological obsolescence lead to a credit market failure in clean energy finance, leading to mispricing of risk and poor capital allocation to clean energy infrastructure in the economy. Access to institutional finance is more constrained in the distributed renewable energy sector because of high transaction costs, high or unknown consumer credit risk, and a variety of other challenges. It is important that these constraints be eased through appropriate policy and financing interventions to crowd-in domestic banks by improving the quality of credit information—technical and commercial—creating suitable financial intermediaries and providing risk mitigation solutions.
Dhruba Purkayastha

Green Bond

7. Differences Between Green Bonds Versus Conventional Bonds
An Empirical Exploration
This chapter empirically investigates how the green bond markets price greenness. Using the liquidity-adjusted yield premium of green bonds over their synthetic conventional bonds, this study explores the possible determinants that drive green bond premiums. Evidence shows that, on average, there is no significant yield premium or discount on green bonds compared with their paired conventional bonds. Interestingly, in the case of a subsample, such as the euro and the US dollar, to control for the currency effect, most explanatory variables are not statistically significant, which suggests that a green bond premium does not exist in dollar-denominated and euro-denominated bonds, while a green bond premium does exist in other currency-denominated bonds. However, green bonds are also not standardized instruments. Certain factors, like “greenness,” are necessary to match the needs of issuers and investors. These factors might have an impact on the price, liquidity, and volatility of green bonds.
Suk Hyun, Donghyun Park, Shu Tian

Carbon Capture and Carbon Pricing

8. Carbon Pricing to Promote Green Energy Projects
Policy Options
The “2-degree target” under the Paris Agreement is challenging, and green energy is the key to the transformation of the energy sector. “All energy, all technology” should be the basic approach for green energy. Carbon capture and storage (CCS) is an important option, but a critical barrier for CCS is its economics. In general, it will not be realized without sufficiently high carbon pricing. Also, carbon pricing is an effective instrument for comparing the economics of various technology options, including renewable and fossil fuel with CCS, and indicates the target cost for technology and finance innovation.
Carbon capture, utilization, and storage (CCUS), such as CO2 enhanced oil recovery (EOR), generates cash flow with or without carbon pricing and a CO2 EOR project as CCS is implemented by a combination of R&D subsidies and commercial base finance. Green finance may support CCUS projects when certain conditions are satisfied.
The barriers to further use of green finance for CO2 EOR projects are the high CO2 capture cost, oil price volatility, the long-term liability of safe containment, and carbon pricing. An idea for fast-tracking to CCS is low-carbon jet fuel because its demand is certain. Accumulation of experience of CCS by low-carbon jet fuel will push technology innovation and cost down and accelerate the green transformation in the energy sector. CCS/CCUS should be a target of green finance for green energy.
Takashi Hongo
9. Financial Barriers and Strategies for Promoting Carbon Capture and Storage Technologies
It is no exaggeration to state that global warming is the most serious global environmental problem that we face in the future. In order to minimize the negative impacts of global warming, efforts to reduce greenhouse gas emissions into the atmosphere are being made in various countries around the world. Indeed, the goal of halving carbon dioxide (CO2) emissions by 2050 is typical and the International Energy Agency (IEA) has drafted and announced the roadmap as a BLUE Map scenario in order that it may be realized. Taking this objective into account, the best solution would be to substitute fossil fuels with renewable energy and nuclear energy. However, it is difficult to quickly transition from the widespread utilization of fossil fuels as an energy source. Therefore, carbon capture and storage (CCS) is increasingly deemed an important strategy that collects the CO2 generated and stores it in the ground. In the BLUE Map scenario, a 19% CO2 reduction target is expected to be achieved by CCS technologies (CCSTs), thus CCS is today considered an indispensable technology for future CO2 reduction, in addition to clean coal technologies (CCTs). However, its development is difficult, owing in large part to its high cost as well as the diverse negative impacts of the deployment of CCSTs. In order to enhance CCSTs as a promising solution toward sustainable development, it is essential to improve institutional and financial support systems at various stages, such as design and construction, to overcome the financial barriers for CCST projects.
Akira Ogihara

Banks and Non-bank Financial Institutions

10. Stimulating Non-bank Financial Institutions’ Participation in Green Investments
This chapter analyzes the approaches adopted by institutional investors to manage climate risk in their portfolios and proposes policies to increase climate awareness in this large segment of the capital markets. Because of their size and their role as a conduit of savers’ climate concerns to the capital markets, most non-bank financial institutions are ideally positioned to steer corporate capital allocation towards more sustainable uses. Over the past decades, an increasing number of institutional investors have adopted strategies to mitigate climate exposure. These include negative screening, positive screening, active ownership, sustainability ratings, and hedging of climate risks. These strategies reflect specific fund manager mandates and the recognition that climate risks can have a tangible impact on financial assets’ valuations and, as a result, institutional fund performance. We review the evidence from the adoption of these strategies, in both advanced and developing capital markets. We then analyze the pros and cons of each strategy in promoting more sustainable climate practices and identify best practices. We conclude with policy recommendations for capital markets regulators to incentivize the adoption of sustainable practices among institutional investors.
Gianfranco Gianfrate, Gianni Lorenzato
11. Role of Bank Lending in Financing Green Projects
A Dynamic Stochastic General Equilibrium Approach
This chapter develops an environmental dynamic stochastic general equilibrium (E-DSGE) model with heterogeneous production sectors. In particular, the model specifies for the inclusion of low-carbon emissions firms that finance their investments and production only through banking loans, and high-carbon emissions firms that finance their investments either with bank loans or by issuing equities. Moreover, governments impose intensity targets to reduce pollution and allow high-carbon emissions firms to buy permits to allow their production. The model studies the transmission mechanism of technology, monetary, and financial shocks and finds that only a positive financial shock to green firms can boost production and credit. Financial shocks can be interpreted as those that affect the borrowing capacity of firms by tightening or relaxing the enforcement of collateral constraints. By contrast, a positive technology shock and easier monetary policy lead only to a short output on impact; over the longer term, green firms experience losses. The chapter analyzes the impact of several macroprudential policies and finds that only differentiated capital requirements can sustain green financing.
Maria Teresa Punzi
12. A Comparative Study on the Role of Public–Private Partnerships and Green Investment Banks in Boosting Low-Carbon Investments
Following the successful climate agreement in Paris, global attention shifted quickly to how countries will achieve their Nationally Determined Contributions. To achieve these goals, governments need to make full use of the private sector’s capacity to unlock much larger investment flows in low-carbon infrastructure. This chapter focuses on two different types of mechanism, Public–Private Partnerships (PPPs) and Green Investment Banks (GIBs). While PPPs are more practical for countries that have robust demand and are complemented by strong institutions and governance, protection of investments, and dispute resolution mechanisms, GIBs leverage public funding to mobilize much larger pools of private capital using innovative transactions, risk reduction structures, and market expertise. Although their common objective is to scale up low-carbon investment, both PPPs and GIBs have been established in a variety of national contexts to achieve a range of goals, including access to concessional capital with lower interest rates and longer tenures for green investments. This chapter examines the rationale, mandates, and financing activities of these two categories of financial architecture within the context of India and Japan. It takes stock of the actual and potential use of these two approaches and for strengthening bilateral cooperation between India and Japan.
Dharish David, Anbumozhi Venkatachalam

Fintech and Financial Innovation

13. Energy Efficiency Finance Program
Best Practices to Leverage Private Green Finance
A common struggle across energy efficiency programs is the creation of sustainable private sector markets that reduce demand. The purpose of this study is to outline best practices for smart public programs that overcome the main energy efficiency challenges and leverage the private finance needed for deployment at scale. Our concluded program is based on an assessment of 10 case studies, interviews, and evaluations of past programs. The results revealed that policy frameworks should strengthen investment business cases with the right economic and regulatory drivers. Furthermore, more resources should support technical assistance. Activities such as awareness raising, pipeline generation, and de-risking are essential to create sufficient demand and commitment. In addition, upskilling, equipping, and accrediting suppliers and technical advisors is critical to create a sustainable, scalable, and bankable pipeline.
Simon Retallack, Andrew Johnson, Joshua Brunert, Ehsan Rasoulinezhad, Farhad Taghizadeh-Hesary
14. The Role of Fintech in Unlocking Green Finance
Policy Insights for Developing Countries
The achievement of the Sustainable Development Goals (SDGs) and implementation of the Paris Agreement will require significant new investment. New financial technologies (“fintech”) offer the potential to unlock green finance technologies, such as blockchain, the Internet of Things (IoT) and big data, developed over the same timeframe as the Paris Agreement and the SDGs. This chapter outlines three broad areas for the possible application of fintech to green finance: blockchain applications for sustainable development; blockchain use-cases for renewable energy, decentralized electricity market, carbon credits, and climate finance; and innovation in financial instruments, including green bonds. This chapter focuses on blockchain use-cases pertaining to sustainable development and renewable energy and highlights examples from Europe, which has been a leader in blockchain technology. The chapter explores the implications for developing economies in Asia and draws preliminary recommendations for policy makers interested in harnessing fintech and blockchain for low-carbon, climate-resilient investment, and the achievement of the SDGs.
Darius Nassiry

Green Technology Financing

15. Use of Innovative Public Policy Instruments to Establish and Enhance the Linkage Between Green Technology and Finance
The risks pertaining to the applicability and profitability of green technologies have discouraged the participation of private financial institutions in green space, and investment is mostly limited to a handful of proven green technologies. It is therefore imperative to explore how appropriately designed public policy instruments could unlock private investment in green technologies. The first part of the chapter introduces the term “green technology financing”, after which it introduces three national green technology financing schemes, one each in Malaysia, the Netherlands, and the Republic of Korea, and each layered with an appropriately designed certification scheme. Next, the chapter discusses innovative aspects of these schemes, and introduces an institutional case from the Republic of Korea that has addressed some of the limitations of those schemes and that has largely helped mitigate real and/or perceived risk associated with green technology projects on the part of private financiers. Finally, the chapter makes policy recommendations specific to developing countries for attracting private finance to green technologies.
KyungJin Hyung, Prajwal Baral

Community-Based Green Finance

16. Role of Hometown Investment Trust Funds and Spillover Taxes in Unlocking Private-Sector Investment into Green Projects
In 2016, 88.90% of the Asia and the Pacific region’s energy came from fossil fuel, the consumption of which accounted for almost 40% of global CO2 emissions. To ensure the increasing energy needs of the region are in line with sustainable development goals, addressing the financing gaps of green-energy projects is critical. The major challenge for financing green energy is the lower rate of return on projects compared to fossil fuels. Electricity tariffs are often regulated by governments as prices need to be kept low to serve every household as a necessary good. Green energy’s sources of revenue are only from user charges, making it is not so attractive to investors. This chapter proposes a model for using the tax spillover from green energy to returning a portion of the revenue to new projects. In addition, the chapter proposes a community-based funding scheme for smaller-scale green projects (e.g., solar and wind). The chapter shows that using this model for funding green-energy projects will increase the rate of return and make them feasible and attractive to private investors.
Naoyuki Yoshino, Farhad Taghizadeh-Hesary
17. Energy Market Liberalization for Unlocking Community-Based Green Finance
There are increasing expectations on community-based financing for local renewable projects in Japan and in France: In both France and Japan, it has been about 10–20 years since the power market has been open to competition, in which France was ahead in fully liberalizing market to households in 2007, compared to that in Japan of 2016.
With this as a background, a number of local governments are now able to establish power producer suppliers (PPS) to develop and supply renewable energy.
Local renewable projects of the PPSs, if properly designed, can function as a mechanism to create circular financial flow, where profits associated with electricity sales and the associated financial benefits may stay in the communities to form a shared stock for residential benefits.
This chapter illustrates cases in Japan and France, in which both electricity markets were centralized but are now open to new entrants, to identify if and how the projects have come about, and what the key factors of creating community benefits are. It also analyses financial and credibility barriers, through the case studies, to draw lessons for further community renewable development. The findings will help to clarify the importance of community financial flow for the community sustainability, and how the community has gained the access to finance and investment.
Aki Suwa, Magali Dreyfus
18. Financing Solar Photovoltaic Transitions
From Utility to Residential Market Adoption in Emerging Economies
Solar photovoltaic (PV) technological leapfrogging greatly enhances energy accessibility, yet energy affordability remains a critical challenge. Traditional financing options, categorized as the solar-as-asset model, usually favor utility-scale PV projects, whereas the investment growth in smaller-scale PV systems is far behind, particularly in emerging economies. To further untapped PV potential, we need to promote technological adoption in non-utility markets. That requires alternative financing approaches, such as the solar-as-service model. This chapter examines the advantages and disadvantages of different financial schemes for introducing PV facilities in terms of the suitability of funding vehicles and investment mechanisms. Given the government curtailment on subsidies, owing to the gradual PV competitiveness, our analysis particularly focuses on the emerging market for PV installations for self-consumption. As the main obstacle is the high up-front cost of PV systems, we examine the new financial models in which customers buy the service rather than a PV system per se. We consider what conditions would be necessary to facilitate the third-party ownership models and alternative financing schemes. Finally, this chapter discusses what policy measures and instruments can be deployed to foster further PV adoption in the context of emerging economies. This study also provides implications for corporate strategy and financial institutions.
Ranaporn Tantiwechwuttikul, Masaru Yarime

Role of Fiscal Policy in Unlocking Green Finance and Green Investment

19. Implications of Fiscal and Financial Policies on Unlocking Green Finance and Green Investment
Private investment in renewable energy must be scaled up to achieve decarbonization of the global economy, low carbon transformation, and climate-resilient growth. The United Nations advocates that governments should create a level playing field for private investment in renewable energy, where fiscal policies shall be used to incentivize engagement from the private sector. While the studies on renewable energy are abundant and range from unlocking renewable energy investment to effects of environmental policies on innovation, energy efficiency policies, investment policies in renewable energy, and adoption of feed-in tariffs, studies that uncover the determinants of private investment in the renewable energy sector are limited. Unlike the previous literature, which is concentrated on the total green investment, this chapter distinguishes private sector investment and government investment in renewable energy. Using multilevel data from 13 countries over the period 2004–2016, this chapter investigates the impact of four fiscal and financial policy instruments, namely (1) feed-in tariffs, (2) taxes, (3) loans, and (4) grants and subsidies, on private investment in renewable energy. Estimation using multilevel random intercept and random coefficient model provides evidence of the effectiveness of two policy instruments, feed-in tariffs and loans. This study could benefit policymakers and researchers in understanding the factors enabling a scale-up of renewable energy investment.
Dina Azhgaliyeva, Zhanna Kapsalyamova, Linda Low
20. Impact of Fiscal Policy on Green Technologies Transfer
Under the 2016 first nationally determined contribution, the Indonesian government announced emissions reduction targets of 29% and 41% by 2030 without and with international assistances respectively. Germany, Japan and the United States (US) are three key players among the Organization for Economic Co-operation and Development (OECD) countries that have actively assisted the Indonesian government through several channels, such as bilateral assistances (loans and grants) and low-carbon technologies transfer. In terms of the energy efficiency sectors, in its 2017 National Energy Plan, the Indonesian government has described its intention to achieve a 17% increase in energy efficiency across industries compared to the business as usual condition (BAU). In order to achieve these energy efficiency targets, several fiscal policies were suggested to be implemented by the Indonesian government, including reducing value-added tax (VAT) and import duty on imported energy efficiency equipment and providing tax incentives for energy efficiency producers, particularly in the industrial manufacturing, building and transport sectors.
Against this background, this study aims to assess both the direct and indirect impacts of selected fiscal instruments in the energy efficiency sector in Indonesia in terms of low-carbon technologies (green technologies) using multi-region input–output analysis. The findings of this study reveal that fiscal policy in the energy efficiency sector would bring benefits not only for the Indonesian government as a recipient country but also for Germany, Japan, and the US as providers of low-carbon technologies (green technologies) to Indonesia.
Ambiyah Abdullah

Barriers and Solutions to Green Finance in Selected Countries

21. Green Finance in Australia and New Zealand
Barriers and Solutions
We explore the history and current status of green energy finance in Australia and New Zealand. Although both countries have enviable renewable energy resources with a 100% renewable mix considered feasible, the two countries present highly contrasting contexts for energy finance. Currently, and largely for historical reasons, renewables make up over 80% of the electricity capacity in New Zealand, whereas in Australia this is 17%. Interestingly, between them and over time, the two countries have employed most of the important policy tools available to incentivize renewables and green energy finance (e.g., carbon taxes, carbon trading, a green investment bank, a green certification market, and feed-in tariffs). Despite this, we show that between 2004 and 2017 both countries did not meet their potential in terms of renewables and have lower levels of green energy investment relative to gross domestic product per capita than many other developed countries. The Australian and New Zealand context provides many lessons for other jurisdictions—ranging from the need for cross-party and regulatory commitment to energy transition, to the need for policy stability. Indeed, a key issue in Australia and New Zealand is the challenge of designing electricity markets that support energy transition and the investment that it requires. Incumbents in both jurisdictions are fearful of a “death spiral” induced by distributed power, and in Australia political instability and market design issues contributed to a major energy crisis in 2017. However, the crisis, the Paris Agreement, and the associated impetus of new governments in both countries suggest green energy investment is set to increase in the coming years.
Ivan Diaz-Rainey, Greg Sise
22. Green Finance in Bangladesh
Barriers and Solutions
This chapter provides an overview of Bangladesh’s green financing status, with a focus on the renewable energy (RE) sector, particularly the potential for and the impediments to expanding RE projects. As a case study, this chapter analyzes various aspects of a successful solar home system (SHS) program, which the Infrastructure Development Company Limited (IDCOL) implemented, to understand the risks and potential of a renewable energy project. It also highlighted that though the Bangladesh Bank has formulated green banking guidelines, the lack of capacities of banks and financial institutions, the lack of a proper understanding of the risks and returns of green projects, and the underdeveloped equity and bond markets hamper the expected growth of green financing in Bangladesh. Therefore, this chapter suggests that the capacity building of banks and financial institutions, the development of bond and equity markets, a well-coordinated policy oversight body and appropriate incentive structure for the private sector are some key policy issues that Bangladesh needs to address to promote green projects and achieve sustainable development.
Monzur Hossain
23. Green Finance in India
Barriers and Solutions
The Indian energy sector is experiencing a transition with increasing penetration of renewables. One of the major challenges is securing the necessary finance to produce 175 GW of renewables by 2022. The present chapter offers a granular understanding of mobilizing such finances, drawing from the Indian perspective, and identifies emerging pathways. In addition to sector-specific issues, renewable energy financing in India continues to face multiple obstacles stemming from the nature of the current national financial market in general, such as short-tenure loans, high capital costs, and lack of adequate debt financing. Introducing innovative financing mechanisms and instruments requires advantageous conditions to prevail.
Gopal K. Sarangi
24. Green Finance in Indonesia
Barriers and Solutions
Indonesia’s population growth, urbanization, and economic growth are driving growing energy demand, and greenhouse gas emissions (GHG). Although abundant in renewable energy resources, the country’s economy and energy security is largely reliant on fossil fuels, with coal and gas generators risking asset stranding in a rapidly decarbonizing world. The government has pursued policy reform to support GHG reductions and accelerate the adoption of renewable energy. However, unclear incentives, historical subsidies, inconsistent policies, and concentrated monopoly structures that obscure cost transparency, are hampering the achievement of its targets. Under the current business-as-usual trajectory, increasing emissions and other associated climate impacts present a range of socioeconomic risks. Although studies indicate that it is technically feasible for Indonesia to undertake an affordable green transformation without jeopardizing economic growth and poverty reduction, there exists a large gap in financing. Increased investment from both private and public sectors is needed, as public funds alone are insufficient. This chapter identifies the market, policy, and governance barriers—including financial credit regulations, uncompetitive pricing, restrictive project scale, and limited access to information—to unlocking green financing for a low-carbon energy transition. We propose reform pathways via the development of mechanisms for market transparency that include the need for a wholesale electricity market and low emissions and renewable investments using tradable certificate-based policies (in particular CO2 credits), harmonization of policies across ministries and agencies, and a reduction of electricity and fossil-fuel subsidies and cross-subsidies. Together, these measures are needed to create a transparent and lower risk investment landscape.
Ariel Liebman, Aisha Reynolds, Dani Robertson, Sharna Nolan, Megan Argyriou, Beth Sargent
25. Green Finance in Malaysia
Barriers and Solutions
There is growing concern about a secure and sustainable energy future. An emphasis on long-term energy security, sustainable economic growth, and controlling greenhouse gas emissions has made Malaysia one of the fastest-growing countries in terms of renewable energy sources. Recently, Malaysia has made considerable progress toward renewables, with incentives provided over the years reflecting the government’s efforts to develop and support the sector. As part of its intent to invest in a green economy, Malaysia, like many countries, has enhanced its efforts, incentives, standards, awareness, and policies regarding green finance. Despite all the developments and progresses, the country requires more support from the government in motivating people to use renewables and developing new green projects.
Behnaz Saboori, Azlinda Azman, Maryam Moradbeigi
26. Green Finance in Pakistan
Barriers and Solutions
Pakistan has been mired in a crippling energy crisis for several years, but is experiencing a rapid turnaround in the energy sector with several new projects coming online. However, government interventions rely heavily on imported fuel such as oil, coal, and LNG. An import-driven energy policy is not sustainable for Pakistan. Besides being a drain on its foreign exchange reserves, it exposes the economy to international energy price shocks, putting the entire economy at risk. A green energy-based energy policy can help Pakistan meet its energy requirements while reducing its dependence on imports and hence reduce the cost of energy to the country. This paper describes how the regulations and the structure of the power market support the financial viability of renewable energy in Pakistan and enable easy access to financing. The one-buyer, take-or-pay model of power purchase ensures that any new project that may produce expensive power but provides other benefits like clean energy or an improvement in the balance of payments (use of local fuel instead of imported fuel) can be financially viable provided the government approves it. However, the increased financial viability comes at the cost of higher energy prices to consumers due to low operational efficiencies and a higher subsidy burden on the government. The paper also discusses the challenges faced by distributed renewable energy projects (like home rooftop solar energy solutions) since they do not benefit from the same one-buyer, take-or-pay support. However, subsidized financing can help increase the penetration of this source of energy.
Sadia Malik, Maha Qasim, Hasan Saeed
27. Green Finance in the Republic of Korea
Barriers and Solutions
The Republic of Korea launched its green finance scheme in 2009, introduced the environmental information disclosure system in 2013, followed by the emissions trading scheme in 2015. Green finance is expanding as the government is making efforts to change the energy mix by decreasing the share of nuclear energy and increasing that of new and renewable energy. Private sector entities such as commercial banks, private equity funds, etc. are also attempting to revitalize green finance in the country. Changing the energy mix needs considerable financial resources, so the government is seeking to collaborate with private firms. Public support regarding the adoption of eco-friendly and energy-efficiency practices through green financing, public or private, is necessary, together with industrial support from the government and financial institutions.
Deokkyo Oh, Sang-Hyup Kim
28. Green Finance in Singapore
Barriers and Solutions
Green finance or green bonds have gained a strong momentum in the world. Some Asian countries such as the People’s Republic of China and Japan are very active in green finance. This chapter reviews how green finance in Singapore is working, examines existing barriers, and suggests some solutions. Singapore, a well-established financial hub in Asia, aims to be a hub in green finance in Asia. The Monetary Authority of Singapore (MAS), the central bank of Singapore, has formed a network with other seven central banks in the world called “Central Banks and Supervisors Network for Greening Financial System”, which intends to promote sharing of experiences and best practices in green finance with other countries. Along with the forming the network, the MAS has established a Green Bond Grant scheme to promote and ensure the issuance of green bond in Singapore. In parallel, the Association of Banks in Singapore (ABS) published Guidelines on Responsible Financing to promote and support environmental, social, and governance (ESG) disclosures. The Singapore Exchange (SGX) asks its member firms to strictly comply with the ESG disclosures. At an individual firm level in Singapore, City Developments Limited (CDL), a real estate developing company, and Development Bank of Singapore Limited (DBS), a commercial bank, issued Singapore’s first and second green bonds in 2017. The proceeds of the CDL Green Bond are allocated to finance retrofitting and upgrading of a commercial building in Singapore while the proceeds of the DBS Green Bond are to invest in renewable energy and climate change adaptation, among others. How successful the two green bonds meet their pronounced goals and how well and effectively they contribute to the diffusion of renewable energy remains to be seen.
Youngho Chang
29. Green Finance in Viet Nam
Barriers and Solutions
Viet Nam’s energy sector has made considerable strides in recent years in achieving a high percentage of nationwide electrification and a relatively diversified energy mix that is dominated by hydropower, followed by gas and coal. However, sustaining those achievements including addressing gradually depleted domestic resources, keeping pace with growing energy demand from the energy-intensive economy, and meeting ambitious climate change targets under the nationally determined contributions in the Paris Agreement need large sums of new investment, particularly in renewables. If those necessary investments are not satisfied, it will further increase Viet Nam’s dependence on imported coal to cater for its future energy needs with substantial negative environmental, health, climate change, and economic consequences. Based on the existing challenges, the chapter makes recommendations including establishing more conducive conditions for private investment and strengthening the domestic funding environment through a functional financial market.
Trong Co Nguyen, Anh Tu Chuc, Le Ngoc Dang
Handbook of Green Finance
Prof. Dr. Jeffrey D. Sachs
Wing Thye Woo
Prof. Naoyuki Yoshino
Prof. Farhad Taghizadeh-Hesary
Copyright Year
Springer Singapore
Electronic ISBN
Print ISBN

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