GAME-CHANGER OR COMPLEMENT? THE POTENTIAL OF PUBLIC FINANCE INSTRUMENTS FOR COVERING RISKS AND FACILITATING LOW-CARBON INVESTMENTS IN DEVELOPING COUNTRIES

The document investigates whether public finance-facilitating tools can act as a 'game-changer' for low-carbon investment in developing countries. It identifies that while these tools can address various risks and increase liquidity, they are not a substitute for ambitious climate policies and direct payment mechanisms. Key challenges include a lack of 'deal flow' in less advanced economies, the risk of crowding out private capital, and the inherent risk-aversion of public finance institutions that must maintain high credit ratings.

• Public finance-facilitating instruments, including equity, debt, and guarantees, can leverage private capital by providing a "signalling" effect, covering risks that impede investment, and increasing capital flow in underdeveloped financial markets.
• While a wide range of tools exists to cover country, policy, technology, and market risks, coverage is typically partial because public finance institutions are risk-averse and seek to avoid moral hazard.
• A 'deal flow' problem—a shortage of bankable low-carbon projects—is particularly acute in smaller, less advanced economies, whereas larger economies like China and India have sufficient opportunities.
• Finance-facilitating tools cannot fully replace direct payment instruments (such as feed-in tariffs) because some low-carbon technologies have returns too low to attract private investors even with risk reduction.
• Public finance instruments risk 'free riding' or crowding out private capital by covering risks that the private sector would have otherwise managed, though this can be mitigated through stringent due diligence and exit strategies.
• Many public finance institutions are overly risk-averse because they rely on private capital raised via bonds and must preserve their AAA credit ratings to remain trustworthy to investors.
• Analysis of World Bank guarantees from 1990-2007 shows a disproportionate focus on fossil fuels; more than half of the USD 6 billion in covered investments targeted fossil fuels, while less than a quarter benefited renewable energy.
• The authors conclude that finance-facilitating tools are a necessary complement but not a 'game changer' on their own; achieving 2°C targets requires ambitious climate policies, such as carbon pricing, to create a sustainable investment environment.

APA

Stadelmann, M., & Newcombe, K. (2011). GAME-CHANGER OR COMPLEMENT? THE POTENTIAL OF PUBLIC FINANCE INSTRUMENTS FOR COVERING RISKS AND FACILITATING LOW-CARBON INVESTMENTS IN DEVELOPING COUNTRIES. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-finance-facilitating-uzh-final.pdf

Chicago

Stadelmann, Martin, and Ken Newcombe. GAME-CHANGER OR COMPLEMENT? THE POTENTIAL OF PUBLIC FINANCE INSTRUMENTS FOR COVERING RISKS AND FACILITATING LOW-CARBON INVESTMENTS IN DEVELOPING COUNTRIES. Climate Strategies, 2011. https://climatestrategies.org/wp-content/uploads/2014/11/cs-finance-facilitating-uzh-final.pdf.

Wikipedia

{{cite report |last1=Stadelmann |first1=Martin |last2=Newcombe |first2=Ken |title=GAME-CHANGER OR COMPLEMENT? THE POTENTIAL OF PUBLIC FINANCE INSTRUMENTS FOR COVERING RISKS AND FACILITATING LOW-CARBON INVESTMENTS IN DEVELOPING COUNTRIES |publisher=Climate Strategies |date=September 2011 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-finance-facilitating-uzh-final.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{stadelmann2011gamechanger, author = {Stadelmann, Martin and Newcombe, Ken}, title = {{GAME-CHANGER OR COMPLEMENT? THE POTENTIAL OF PUBLIC FINANCE INSTRUMENTS FOR COVERING RISKS AND FACILITATING LOW-CARBON INVESTMENTS IN DEVELOPING COUNTRIES}}, institution = {Climate Strategies}, year = {2011}, month = sep, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-finance-facilitating-uzh-final.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }