A Model for Utilizing Spillover Taxes and Community-Based Funds to Fill the Green Energy Financing Gap in Asia

In 2016, 88.90% of Asia and the Pacific’s primary energy consumption was from fossil fuels, and almost 40% of the global CO2 emissions were from Asia and the Pacific. To ensure the increasing energy needs of the region are in line with the sustainable development goals, addressing the financing gaps of green-energy projects is critical. The major challenge for filling the financing gaps of green energy is the lower rate of return on green projects compared to fossil fuels. Electricity tariffs are often regulated by governments. Electricity prices have to be kept low to serve every household as a necessary good. Green energy’s sources of revenue are only from user charges. Hence, it is not so attractive to investors. We propose a model for utilizing tax revenue spillover from green-energy supply by returning a portion of the taxes to green-energy projects in order to increase their rate of return. In addition, we propose a community-based funding scheme for smaller-scale green projects (e.g., solar and wind). We show that, theoretically, this model for funding green-energy projects will increase the rate of return and make them feasible and interesting to private investors.

WORKING PAPER NO: 899