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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.

Suggested Citation

  • 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. 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.
    2. Sarah Armitage & Noël Bakhtian & Adam B. Jaffe, 2023. "Innovation Market Failures and the Design of New Climate Policy Instruments," NBER Chapters, in: Environmental and Energy Policy and the Economy, volume 5, pages 4-48, National Bureau of Economic Research, Inc.
    3. 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.
    4. 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).
    5. 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.
    6. Caroline Flammer, 2019. "Green Bonds: Effectiveness and Implications for Public Policy," NBER Working Papers 25950, National Bureau of Economic Research, Inc.
    7. 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).
    8. 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.
    9. 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.

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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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