Role of Hometown Investment Trust Funds and Spillover Taxes in Unlocking Private-Sector Investment into Green Projects

Abstract

In 2016, 88.90% ofthe Asia and the Pacific region’s energy came from fossil fuel, the consumption ofwhich accounted for almost 40% ofglobal CO2 emissions. To ensure the increasing energy needs of the region are in line with sustainable development goals, addressing the financing gaps of green-energy projects is critical. The major challenge for financing green energy is the lower rate ofreturn on projects compared to fossil fuels. Electricity tariffs are often regulated by governments as prices need to be kept low to serve every household as a necessary good. Green energy’s sources of revenue are only from user charges, making it is not so attractive to investors. This chapter proposes a model for using the tax spillover from green energy to returning a portion of the revenue to new projects. In addition, the chapter proposes a community-based funding scheme for smaller-scale green projects (e.g., solar and wind). The chapter shows that using this model for funding green-energy projects will increase the rate ofreturn and make them feasible and attractive to private investors.