The policy coordinator role of national development banks in scaling climate finance: Evidence from the renewable energy sector

ABSTRACT

This paper investigates the roles of national development banks (NDBs) in mobilizing climate finance for domestic renewable energy deployment by conducting a comparative analysis based on a developed country and two developing countries with NDBs, namely Germany with KfW, China with CDB, and India with IREDA. The research argues that, besides working as a direct financier and catalytic mobilizer for climate finance, NDBs can serve as a policy coordinator to amplify the effectiveness of climate policies as countries are scaling up finance for climate related programmes. NDBs play this policy coordination role through three mechanisms: 1) providing expertise and channelling market information/feedbacks to the policymaking process to advance renewable energy designs and refinement; 2) mitigating policy gaps or barriers that cannot be, or can only partially be, alleviated by existing renewable energy policies; and 3) providing a coherent and holistic basket of financial services to concentrate resources behind national priorities. The coordinator role is enabled by NDBs’ state-ownership, proximity to local markets and local contexts, and information and expertise. This study also identifies the differences of NDBs’ roles in supporting renewable energy finance between developed and developing countries. The research contributes to the existing literature by conducting a comparative analysis of NDBs in climate finance between developed and developing countries and by clarifying the role that NDBs have in empowering climate policies to facilitate investment in renewable energy.

Key policy insights

• Governments should focus on a stable and well-designed policy framework to scale up climate finance.

• NDBs can then serve in a policy coordinator role to amplify the impacts of climate policies.

• NDBs can provide expertise and channel market information/feedbacks to advance design of climate finance policies.

• NDBs can mitigate barriers that cannot be, or can only partially be, alleviated by existing climate policies.

• NDBs can provide a coherent and holistic basket of financial services to concentrate resources behind national priorities.

KEYWORDS:

• National Development Banks (NDBs)
• climate finance
• renewable energy
• public policy
• policy coordinator

Acknowledgments

The author is grateful for the constructive and great comments from the three anonymous reviewers and the editor. Professor Kelly Sims Gallagher and Professor Laurent Jacque of The Fletcher School and Professor Mariana Mazzucato of University College London provided valuable comments on the first draft of this paper. Both Matthew Arnold and Jillian DeMair were excellent copy editors and enduring sources of support. Any remaining errors are my own.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Scalability refers to the fact that NDBs usually focus on large investment projects that are commonly associated with large companies.

2 The three countries of this study have other public financial institutions that are involved in the renewable energy sector (as shown in Appendix D (see Supplementary Material)). However, given that their target areas are not domestic and, most important, play relatively smaller roles in shaping domestic renewable energy innovation, the research mainly focuses on the three identified NDBs (KfW, CDB, and IREDA).

3 Information from an interviewee at CDB, China, Jan. 11th, 2018.

4 Information from an interviewee at CDB, China, Dec. 27th, 2017.

5 There are seven strategic emerging industries: energy efficient and environmental technologies, next-generation information technology, biotechnology, advanced equipment manufacture, new energy, new materials, and new-energy vehicles.

6 A quote from an interviewee at Treasure HDFC Bank, India, Nov. 21, 2019.

7 A quote from an interviewee at PFC India Financial Services, India, Nov. 28th, 2018.

8 Information from an interviewee at MNRE, India, Dec. 8th, 2018.

9 Information from an interviewee at IREDA, India, Nov. 27th, 2018.

10 Information from an interviewee at CDB, China, Jan. 11th, 2018.

11 Information from an interviewee at German Renewable Energy Federation, Feb. 6th, 2018.

12 A quote from an interviewee at World Bank office in India, Nov. 27th, 2018.

13 Information from an interviewee at CDB, China, Jan. 11th, 2018.

14 Information from an interviewee at Commerzbank, Germany, Feb. 2nd, 2018.

15 A quote from an interviewee at Treasury HDFC Bank, Nov. 21, 2018.

Additional information

Funding

This work was supported by National Natural Science Foundation of China: [Grant Number 72104126]; Climate Policy Lab, Fletcher School: (BPAE/PAT/50621(5)/63365).