Monday, December 8, 2008

Public Finance Mechanisms to Mobilise Investment in Climate Change Mitigation

This Report was produced by the United Nations Environmental Programme"s (UNEP) Division of Technology, Industry and Economics, under its Sustainable Energy Finance Initiative, commissioned the report as a contribution to the UNFCCC Secretariat Technical Paper “Investment and Financial Flows to Address Climate Change: An Update.” The Report finds that "Parties to the UNFCCC are currently assessing how to respond to the challenge of financing the new technology needed to mitigate climate change.

Discussions focus on new financing resources and vehicles to support the development, deployment, diffusion and transfer of climate-friendly technologies in developing countries. Key questions include: What should be the scale of new financing by governments? How can public monies mobilise and leverage sufficient commercial capital to achieve greenhouse gas emissions reduction objectives? In other words: how can the most be made of those new financing resources?
Much of this government support will be used to set up or expand existing Public Finance Mechanisms (PFMs) aimed at climate change negotiation. These PFMs vary in their structure and focus, but all broadly seek to mobilise commercial financing and build commercially sustainable markets for GHG mitigation activities. Examples of climate mitigation focused PFM include:
· Credit lines to local commercial financial institutions (CFI) for providing both
senior and mezzanine debt to projects;
· Guarantees to share with local CFIs the commercial credit risks of lending to
projects and companies;
· Debt financing of projects by entities other than CFIs;
· Private equity (PE) funds investing risk capital in companies and projects;
· Venture capital (VC) funds investing risk capital in technology innovations,
· Carbon finance facilities that monetize the advanced sale of emissions
reductions to finance project investment costs;
· Grants and contingent grants to share project development costs, and
· Loan softening programmes, to mobilise domestic sources of capital,
· Inducement prizes, to stimulate R&D or technology development,
· Technical assistance to build the capacity of all actors along the financing

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