Alternatives to Bank Finance: Role of Carbon Tax and Hometown Investment Trust Funds in Developing Green Energy Projects in Asia

Naoyuki Yoshino () and Farhad Taghizadeh-Hesary ()

No 761, ADBI Working Papers from Asian Development Bank Institute

Abstract: The main obstacle to developing green energy projects is lack of access to finance. For larger energy projects (e.g., large hydropower projects), insurance and pensions are sustainable financing alternatives. Large energy projects are long-term investment projects; banks are not able to provide long-term loans because their resources (deposits) are short- to medium-term. Pension funds and insurance companies hold long-term savings, so these institutions could be a proper alternative for financing mega-size energy projects. On the other hand, because electricity tariffs are often regulated by the government, to increase the investment incentives the spillover effects originally created by energy supplies need to be used, and tax revenues refunded to the investors in energy projects. For smaller-size green projects, the paper provides a theoretical model for combining utilisation of carbon tax and a new way of financing risky capital, i.e., hometown investment trust funds (HITs). Because of the Basel capital requirement, and because most green energy projects from the point of view of financers are considered risky projects, many financers are reluctant to lend to them or they lend at high interest rates. We show that by taxing carbon dioxide (CO2), sulphur dioxide (SO2), and nitrogen oxides (NOx) and allocating those tax revenues to HITs, green projects will become more feasible and more interesting for hometown investors; hence the supply of investment money to these funds will increase.

Keywords: carbon tax; green energy; renewable energy; hometown investment trust funds; HITs (search for similar items in EconPapers)
JEL-codes: E62 G21 Q21 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2017-07-11
New Economics Papers: this item is included in nep-ene, nep-env, nep-mac, nep-ppm and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.adb.org/sites/default/files/publication/329221/adbi-wp761.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:adbiwp:0761

Access Statistics for this paper

More papers in ADBI Working Papers from Asian Development Bank Institute Kasumigaseki Building 8F, 3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan. Contact information at EDIRC.
Bibliographic data for series maintained by ADB Institute ().