Lessons and Innovations to Spur Green Investment in Developing Countries

The document identifies three primary barriers to green investment in developing countries: risk gaps (policy, technology, financial, and sovereign), viability gaps (access to finance and high costs), and knowledge gaps. It argues that while sufficient global capital exists, public policy and finance must be better targeted to unlock it. The briefing provides case studies on fiscal policy adjustments in Indonesia to promote sustainable land use, the use of public-private partnerships and government guarantees to develop geothermal power in Kenya, and various innovative instruments developed through the Global Innovation Lab for Climate Finance, such as Energy Savings Insurance and FX hedging facilities.

• Private sector investment in green projects in developing countries is primarily hindered by risk gaps (including policy, technology, financial, and sovereign risks), viability gaps (such as inadequate access to finance and high costs for immature technologies), and knowledge and awareness gaps regarding new technologies and climate risks.
• In Indonesia, the land use sector's tax system predominantly taxes profitability rather than land size, which fails to incentivize efficient land use and productivity increases, potentially encouraging land clearing and deforestation.
• The Olkaria III geothermal project in Kenya demonstrated that government actions, such as donating previously explored fields to reduce exploration risk and providing government security packages in Power Purchase Agreements (PPAs), can unlock significant private and international public financing.
• The Energy Savings Insurance (ESI) instrument addresses viability and risk gaps for energy efficiency upgrades in SMEs by paying out if projected energy savings are not met; a USD 47.5 million pilot is underway in Mexico targeting 190 agro-industry projects through 2020.
• To address the high cost of currency hedging for renewable energy in India, the India Innovation Lab for Green Finance developed an FX Hedging Facility that can reduce hedging costs by 9% to 79% and potentially mobilize USD 10 million of foreign debt for every dollar of subsidy.
• The Climate-Smart Lending Platform aims to increase private investment in climate-resilient agriculture for smallholder farmers in Africa by mainstreaming climate-smart agriculture (CSA) metrics into the credit scoring systems of local financial institutions.

APA

Climate Policy Initiative (2017). Lessons and Innovations to Spur Green Investment in Developing Countries. https://www.climatepolicyinitiative.org/wp-content/uploads/2017/03/Lessons-and-Innovations-to-Spur-Green-Investment-in-Developing-Countries.pdf

Chicago

Climate Policy Initiative. Lessons and Innovations to Spur Green Investment in Developing Countries. 2017. https://www.climatepolicyinitiative.org/wp-content/uploads/2017/03/Lessons-and-Innovations-to-Spur-Green-Investment-in-Developing-Countries.pdf.

Wikipedia

{{cite report |author=Climate Policy Initiative |title=Lessons and Innovations to Spur Green Investment in Developing Countries |date=April 2017 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2017/03/Lessons-and-Innovations-to-Spur-Green-Investment-in-Developing-Countries.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatepolicyinitiative2017lessons, author = {{Climate Policy Initiative}}, title = {{Lessons and Innovations to Spur Green Investment in Developing Countries}}, institution = {Climate Policy Initiative}, year = {2017}, month = apr, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2017/03/Lessons-and-Innovations-to-Spur-Green-Investment-in-Developing-Countries.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }