Facilitating Low-Carbon Investments: Lessons from Natural Gas
AbstractDecarbonisation of energy and transport infrastructure requires significant private sector investments. The natural gas industry has demonstrated such large scale private sector infrastructure investment over the last decades, typically using long-term contractual arrangements. Are therefore institutional frameworks necessary that facilitate long-term contracting or provide regulation reassuring about future resource streams associated with low-carbon infrastructure - or do factors idiosyncratic to natural gas explain the prevalence of long-term contracts in natural gas infrastructure investment? We identify four reasons for the use of long-term contracting arrangements. The transformation of the natural gas industry and regulatory structure has gradually reduced the rational for three of these reasons, suggesting that remaining rational, securing of revenue streams to finance investments has become the main motivation for the use of long-term contracts. This rational is not idiosyncratic to the natural gas industry, and thus suggests that long-term contracting can also play a significant role in facilitating low-carbon infrastructure investment. We furthermore discuss the role of institutional frameworks necessary for long-term contracting, and identify the significant role governments have been playing in sharing the counterparty risk inherent in long-term contracts.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1154.
Length: 13 p.
Date of creation: 2011
Date of revision:
Investment; low-carbon economy; natural gas;
Find related papers by JEL classification:
- L78 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Government Policy
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-01 (All new papers)
- NEP-ENE-2011-10-01 (Energy Economics)
- NEP-ENV-2011-10-01 (Environmental Economics)
- NEP-REG-2011-10-01 (Regulation)
- NEP-RES-2011-10-01 (Resource Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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