Best Practice Report

Index

2.1.

Incentives

Lack of financial resources in subnational governments is frequently cited as preventing them from delivering policies, programs, and regulations to support green growth (OECD, 2013 and GIZ, 2013). Financial support and incentives from central government can take various forms – including direct grants and low-interest loans; green funds for supporting local projects, funding for infrastructure pre-feasibility assessment, contracting agreements (often used for energy efficiency projects with private sector energy suppliers) and financial bonuses (or penalties) to ensure targets are met (GIZ, 2013). In India, the national government’s program on urban development and renewal – the Jawaharlal Nehru National Urban Renewal Mission (JnNURM, 2013) – provides co-financing for cities to improve efficiency in urban infrastructure and service delivery and to promote transparency, accountability, and public participation. The program’s success can be attributed to national leadership accompanied by financing, a demand-driven approach, capacity building and peer-to-peer learning in local government (Case 1).

In Rwanda, the FONERWA Environment and Climate Change Fund channels domestic and international environment and climate change finance to line ministries, districts, charitable and private entities (Government of Rwanda, 2012). The Philippines’ government has established the People’s Survival Fund, which provides dedicated financing at the local level, with clear operating rules and a board to coordinate and mobilize resources (World Bank, 2013).

Another barrier is a lack of funding for conducting the green infrastructure feasibility studies needed to attract investors. Thus, national governments can enable green growth action at the subnational level through the creation of pre-investment facilities to allow local authorities to produce crucial feasibility studies. To address this gap, the R20-Regions of Climate Action (R20) and the United Nations Office for Project Services (UNOPS) have also launched a facility to help subnational governments to carry out feasibility studies on renewable energy and energy efficiency, and design portfolios of bankable projects to attract both public and private investors (R20, 2013 and UNOPS, 2013).
Effective practice usually includes some combination of ‘carrots and sticks’ in the form of incentives and regulations. For example, the UK Government’s Committee on Climate Change (2012) found that while 65% of the country’s largest city authorities had developed Low Carbon Action Plans it recommended further action could be stimulated by providing additional funding and introducing a statutory duty for local authorities to develop and implement them.

In India, the JNNURM program linked funding incentives to implementation of reforms (see Case 1) and China’s Renewable Energy Law has had significant impact requiring provinces, autonomous regions, and municipalities to set up medium-to-long term objectives and plans for renewable energy development (ADBI, 2013). Both China and India have introduced feed-in tariff schemes operating at subnational level and other initiatives such as China’s national green energy demonstration awards have provided subsidies to over 100 cities to demonstrate development and use of renewable energy (ADBI, 2013).
 

Case 1: India’s Jawaharlal Nehru National Urban Renewal Mission (JnNURM)

The Jawaharlal Nehru National Urban Renewal Mission of India (known as the JnNURM) effectively integrates green growth policies at national and subnational levels. In order to access JNNURM funds, States must enter into tripartite agreements with Urban Local Bodies (ULBs) or Parastatal Agencies and the Government of India. The agreement states the milestones for achieving mandatory and optional reforms. The design of the program integrates national and subnational actions through:

  • Co-financing as an incentive for reform: The central government funds up to 90% of approved projects with fund release dependent on implementation of reforms (MOUD, 2012).
  • National leadership and a demand-driven approach: Instead of simply mandating urban development reforms, JnNURM invites states and local governments to enter into an agreement with national government to combine reforms (mandatory and optional) with financing for urban infrastructure and basic services provided. This approach increased ownership, buy-in, and accountability of states/cities in undertaking reforms. A shift of approach from ‘one-size-fits–all’ to ’tailor-fit’ state/city-specific reforms is considered to enhance local responsiveness (Grant Thornton, 2011).
  • Capacity building in local government: The JnNURM Peer Learning and Knowledge Sharing Network (PEARL), enables experience sharing and networking among city officials (ICLEI, 2012 and MOUD, 2012).