Template-Type: ReDIF-Article 1.0
Author-Name:  Karol Kempa and Ulf Moslener
Title:  Climate Policy with the Chequebook  An Economic Analysis of Climate Investment Support
Classification-JEL: F0
Volume:  Volume 6
Issue:  Number 1
Year:  2017
Abstract:  Across the globe, climate policy is increasingly using investment support instruments, such as grants, concessional loans, and guarantees - whereas carbon prices are losing importance. This development substantially increases the risk of inefficient public spending. In this paper, we examine the ability of finance instruments to effectively and efficiently address market failures related to clean energy investments. We characterise these market imperfections - emission externalities, knowledge spillovers and capital market imperfections - and identify their negative impacts on the investor-relevant risk-return characteristics. We argue that finance instruments are able to address the effects of these market failures. However, a carbon price is superior in internalising the emission externalities. With respect to the latter two inefficiencies, investment support instruments can effectively compensate the market failures if designed appropriately. We further provide policy recommendations on the choice of finance instruments to address the various market failures and guidance on how to use these instruments avoiding inefficient government spending. 
Handle: RePEc:aen:eeepjl:eeep6-1-Kempa
File-URL: http://www.iaee.org/en/publications/eeeparticle.aspx?id=156
File-Format: text/html
File-Restriction: Access to full text is restricted to IAEE members and subscribers.