Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/112729
Authors: 
Kempa, Karol
Moslener, Ulf
Year of Publication: 
2015
Series/Report no.: 
Working Paper Series, Frankfurt School of Finance & Management 219
Abstract: 
Across the globe climate policy is shifting away from a carbon price towards investment subsidies, such as grants, interest-subsidised loans or guarantees. This increases the risk of inefficient public spending. This paper shows how the main market imperfections related to the emission externality, knowledge spillovers and capital market imperfections negatively affect the risk-return-profile of a climate investment. To some extent these negative impacts can be compensated through different forms of investment subsidies. Minimising the risk of inefficient public spending is, however, challenging and requires detailed understanding of technologies and markets at the project level. The analysis provides guidance for the design of appropriate investment subsidy schemes. Carbon prices and investment subsidies are not perfect substitutes, and - at least for developed economies - a carbon price remains the single most efficient instrument. This price should, however, coexist with other instruments, e.g. investment support schemes, which can be tailored to address the non-emission market imperfections related to climate change.
Subjects: 
climate finance
investment support
policy instruments
environmental externality
innovation spillover
capital market failure
Document Type: 
Working Paper

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