Best Practice Report


Mobilizing investment / Creating an enabling environment for green investments / Clear, long-term, and binding policy and regulatory framework

Clear, long-term, and binding policy and regulatory framework

Investors in new and mostly capital-intensive technologies require confidence that governments are committed to policies and regulations that make them viable. Strong, coherent, and long-term frameworks, including binding legislation, are important to increase the certainty of return on investment and credibly help to mitigate risks faced over the lifetime of the projects, offering comfort to investors (see section 5 for risk mitigation measures). Also, giving sufficient lead-time before implementation of regulatory frameworks enables investors to look ahead and invest accordingly.

Overall, as described in greater detail in Chapter 5: Policy design and implementation, there needs to be better coherence between policies delivering green growth across all sectors. Governments should also integrate green growth objectives into broader economic policy-making and development planning (OECD, 2013b). For example, the Korean government proclaimed ‘Low Carbon, Green Growth’ as the new national vision in 2008 and set about establishing a legal framework, policy initiatives, and budget resources to support them.

Germany’s energy efficiency in housing program was implemented through a combination of regulatory and financial interventions. Regulatory measures setting energy performance standards for new and existing buildings were enacted through the Conservation Act (EnEV-Energy Conservation Ordinance), and the national public bank, KfW, provided concessional lines of credit to financial intermediaries that were available for loans to implement energy efficiency measures. A key factor in its success has been the creation of the KfW Efficiency House (KfW-EH), based on the energy performance standards, which is used as a benchmark for financial incentives and the promotion of the brand.

In California, a portfolio of green growth-related regulatory and policy instruments has successfully been complemented by the use of financing measures, an active role of state budget authorities and private initiatives in support of green growth. For example, the California Global Warming Solutions Act of 2006, which forms the basis of California’s cap-and-trade emissions trading scheme, has been complemented by the State’s provision of concessional loans and tax-related financial support measures to implement environmental standards and regulatory measures for air pollution control, energy efficiency for buildings, and appliances (Perry et al., 2013). Private investment is mandated since 1996 by requiring California’s three major investor-owned utilities (Southern California Edison, Pacific Gas and Electric Company, and San Diego Gas & Electric) to collect a ’public goods charge’ on ratepayer electricity use to create public benefits funds for renewable energy, energy efficiency, and research, development and demonstration (RD&D). This, in addition to ambitious regulations and financial incentives, has driven private investment in clean energy and transport in California.