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Maximizing the impact of climate finance: Funding projects or pilot projects?

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  • Kotchen, Matthew J.
  • Costello, Christopher

Abstract

When and how should public agencies provide finance to the private sector in support of climate change mitigation and adaptation? We distinguish theoretically between pilot projects, whose main objective is to obtain information about the desirability of a climate-related project, and full projects, which are at-scale and are often quite risky. When a successful project has distinct private and public benefits, a publicly-funded subsidy may be warranted to induce a pilot project, a full project, or both. We draw on insights about the value of experimentation for entrepreneurship and raising private capital to derive insights about when subsidizing projects or pilots is more efficient. We find that pilot projects have many virtues not previously examined, and these often render them the optimal target of public subsidies to the private sector.

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  • Kotchen, Matthew J. & Costello, Christopher, 2018. "Maximizing the impact of climate finance: Funding projects or pilot projects?," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 270-281.
    • Handle: RePEc:eee:jeeman:v:92:y:2018:i:c:p:270-281
    DOI: 10.1016/j.jeem.2018.08.009
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    Cited by:

    1. Sarah Armitage & Noël Bakhtian & Adam Jaffe, 2024. "Innovation Market Failures and the Design of New Climate Policy Instruments," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 5(1), pages 4-48.
    2. Jesse M. Keenan & Anurag Gumber, 2019. "California climate adaptation trust fund: exploring the leveraging of cap-and-trade proceeds," Environment Systems and Decisions, Springer, vol. 39(4), pages 454-465, December.
    3. Yuan, Huaxi & Zou, Longhui & Feng, Yidai, 2023. "How to achieve emission reduction without hindering economic growth? The role of judicial quality," Ecological Economics, Elsevier, vol. 209(C).
    4. Christopher J. Blackburn & Mallory E. Flowers & Daniel C. Matisoff & Juan Moreno‐Cruz, 2020. "Do Pilot and Demonstration Projects Work? Evidence from a Green Building Program," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(4), pages 1100-1132, September.
    5. Caroline Flammer, 2019. "Green Bonds: Effectiveness and Implications for Public Policy," NBER Chapters, in: Environmental and Energy Policy and the Economy, volume 1, pages 95-128, National Bureau of Economic Research, Inc.
    6. Emanuele Campiglio & Alessandro Spiganti & Anthony Wiskich, 2023. "Clean Innovation, Heterogeneous Financing Costs, and the Optimal Climate Policy Mix," CAMA Working Papers 2023-25, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University, revised May 2024.
    7. Christopher J. Blackburn & Mallory E. Flowers & Daniel C. Matisoff & Juan Moreno-Cruz, 2018. "Do Pilot and Demonstration Projects Work?," CESifo Working Paper Series 7252, CESifo.
    8. Zejin Liu & Steven Van de Walle, 2022. "The role of demonstration projects as policy instruments in the development of nonprofit organizations: Beyond instrumentality," Public Administration & Development, Blackwell Publishing, vol. 42(4), pages 233-244, October.
    9. Vu Minh Ngo & Huan Huu Nguyen & Hiep Cong Pham & Long Hoang Nguyen, 2024. "Engage or retreat? Exploring the determinants of participation in Climate Finance public-private partnerships," Climatic Change, Springer, vol. 177(7), pages 1-30, July.
    10. Amadu, Festus O. & McNamara, Paul E. & Miller, Daniel C., 2020. "Yield effects of climate-smart agriculture aid investment in southern Malawi," Food Policy, Elsevier, vol. 92(C).
    11. Caroline Flammer, 2019. "Green Bonds: Effectiveness and Implications for Public Policy," NBER Working Papers 25950, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H4 - Public Economics - - Publicly Provided Goods
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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