The Carbon-Free Regions Handbook: Finance

The Carbon-Free Regions Handbook helps state, provincial, and regional governments implement policies and actions that place their communities on an aggressive path toward sustainable, low-carbon economies. It is a companion to The Carbon-Free City Handbook, which Rocky Mountain Institute launched in November 2017 at COP23 in Bonn, Germany.    |  By Jacob Corvidae et al.  DOWNLOAD Developed in partnership with the Under2 Coalition

 

Regional governments operate at a scale that lends itself well to organizing and delivering financial solutions, and realizing scale benefits. These finance recommendations are highly variable, with solutions that are very dependent on the local economic and regulatory contexts. Each recommendation is portrayed as a broad strategy, with more detailed information on specific opportunities.

27. CAPITAL AVAILABILITY

27. CAPITAL AVAILABILITY

Invest capital into the infrastructure and assets of a community. Sources of capital must be secured to make those investments possible and to realize the wide range of benefits that those investments provide to the community.

Public-Private Partnerships/Green Banks

The efficient use of limited public resources can make projects more attractive to the private sector, leveraging much larger amounts of private investment for low-carbon solutions. Judiciously using public   resources can help overcome market barriers and increase market activity by crowding in private sources of capital. A good example of public-private partnerships is green investment banks (GIBs). GIBs are public-purpose finance institutions designed to facilitate private investment in local low-carbon, climate-resilient projects by focusing on gaps in the market. They can be used to support small, decentralized efforts or major infrastructure projects. Some entities use a dedicated tax for specific projects to raise infrastructure funds.

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Concessionary Capital

Some philanthropic organizations provide investment dollars for program-related investments (PRIs). Since the investments are aligned with missions, they can usually offer more favorable terms. Some socially minded venture capital firms offer similar solutions.

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Green Bonds

Green bonds are regular government or corporate bonds, the proceeds of which are earmarked for use only for projects that have positive environmental impacts. These bonds broaden the investor base and are tracked to ensure they are used for environmental projects. As a variation, a revenue bond can be issued against infrastructure projects with a dedicated income stream, such as utility services.

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Preinvestment Preparation

Local governments often need support to improve the financial design of project plans in order to attract capital investments. Multilateral funds are sometimes provided to developing countries. Preinvestment services can be financed to leverage larger-scale investments.

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28.  FIRST-COST SOLUTIONS

Develop financing solutions that can cover the up-front costs for carbon-reduction actions that will create financial savings in the long term. These solutions will unlock more action, remove financial burdens associated with new requirements, and deliver greater financial benefits to those private stakeholders. The government’s role in these solutions can vary, with some requiring enabling legislation (e.g., property assessed clean energy programs) and others that are newer innovations needing support and introduction to the market (e.g., green leases).

Energy Savings Performance Contracts

ESPCs are contracts with a private energy services company to evaluate and deliver cost-effective energy upgrades to a facility and pay for those upgrades with the energy savings, providing a guaranteed savings and the private financing to make the upgrades. Regions can organize programs or pass legislation to allow and encourage ESPCs.

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Total Cost of Ownership Procurement Reform

Incorporating a total cost of ownership policy for the government and within the community will drive procurement decisions that include operating and maintenance costs. This approach supports greater energy efficiency, which may be discouraged by status-quo procurement policies that rely on low purchase costs.

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Green Leasing

Leasing arrangements typically create a “split incentive” where building owners have little incentive to invest in energy-related capital improvements because the tenants pay the utility bills and benefit from the lower energy use. With green leasing (or energy-aligned leasing), tenants and landlords share the costs and the benefits of site energy upgrades, which can include building efficiency and renewable generation.

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Property Assessed Clean Energy

PACE programs allow building owners to secure funds for energy-efficiency upgrades, and pay them back through their property tax assessments because of a public-private partnership. The result is that funds can be provided based on real estate values rather than personal or corporate credit, repayment is done through the existing tax mechanism, and the financing stays with the building rather than moving with the individual or company. PACE is active in over 20 US states, and residential PACE programs in only three states have unlocked a $5 billion market. PACE-like instruments are being developed in places like China and Europe.

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On-Bill Financing

Financing from public or private sources can be provided to bill-payers through the utility, creating a convenient option for customers, who can see the savings on their bills and pay all their energy-related costs in one place. This approach can also provide a viable business model for utilities to encourage their support of energy improvements in their service territories.

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29. MARKET INCENTIVES

Market structures can help stimulate widespread action in the private sector.  Governments can play a key role in supporting or even structuring markets to unlock that potential. These incentives help accelerate adoption and overcome status quo inertia.

Carbon Tax/Greenhouse Gas Trading

Support emissions reductions by putting a price on carbon—a carbon tax or fee—which will drive down emissions as polluting becomes more expensive. Alternatively, support setting emissions reductions targets, capping the total amount of allowable emissions, and allowing the market to determine the price with a greenhouse gas cap-and-trade policy. By putting an economic cost on carbon and creating a market for carbon-saving endeavors, governments can create market conditions that support carbon-saving solutions.

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Investment Tax Credits

Providing tax credits for projects that include renewable energy or energy-efficiency measures. Tax credits can be applied in several areas, including property taxes, income tax, value-add taxes, and others.

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Incentives for Clean Technology Companies

Create incentives for clean technology companies, including economic development grants, tax incentives, and public venture capital programs.

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30. REDUCED PROCUREMENT COSTS

Regional governments are well positioned to organize programs that will lower the cost to procure upgrades and assets, such as solar installations, electric vehicles, and air-source heat pumps. By organizing these programs at scale, greater cost reductions can be achieved for constituents across the region.

Reverse Auctions for Procurement

In a reverse auction, the sellers are competing to provide the lowest price, as opposed to a traditional auction where buyers are competing for a higher price. Using this approach for energy-related procurements can effectively secure lower costs, as long as other quality requirements are clearly defined.

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Aggregate Purchasing Programs

Organize aggregate (or bulk) purchasing opportunities for local governments and private businesses or citizens to secure lower prices and create a time-bound trigger to spur action. These can be direct equipment purchases or power purchase agreements.

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