CTF Government Policy Support

It is estimated that between three to six trillion dollars in climate finance needs to be mobilized annually to maintain a 1.5 degree future, yet 2021 saw only 630 billion dollars mobilized toward this goal. While it is known that much more financing is needed for investments in various low carbon infrastructure projects, a key question is how to mobilize it, especially with regard to private sector funding. The Clean Technology Fund (CTF) aims to address this gap in funding by providing concessional financing, bearing the brunt of the risk to demonstrate that a range of frontier clean technologies are viable and sustainable. CTF provides this financing in the expectation that as more players invest in these technologies, these projects will need less concessional finance, with such technologies becoming fully self-sustaining over time. However, governments in recipient countries also play a vital role in ensuring the long-term success of such projects, by creating the necessary conditions to crowd in investments from other sources.

A sizeable literature focuses on the importance of supportive government policies and commitment to a climate change agenda in order to achieve high-level climate outcomes such as emission reductions and increased investment in various clean technologies. Given that clean technologies are new and rapidly evolving, especially for middle income economies, many existing policies today might not address their needs, creating an uncertain investment environment. Moreover, these frontier technologies still have an unproven track record in the long term and have relatively higher upfront costs, adding another layer of complexity and uncertainty. Changes in governmental policies and regulations can provide further clarity and other incentives, creating a more conducive and stable environment to bring additional private sector financing into this field. When the CTF first invested in clean technology projects, many were the first of their kind in the contexts in which they were implemented, were considered frontier technologies, and had a very limited investment track record. To enable CTF projects to achieve their goals, many projects have included enabling environment and policy support components to help enhance the capability of partner governments to support projects and to ensure a positive investment environment. Moreover, as CTF gained more experience supporting these projects in a range of contexts, projects increasingly sought to build capacity and promote an enabling environment.

Climate projects produce a range of documentation on project design, implementation, and outcomes at completion. These documents can offer concrete insights into how government policy choices contribute to the success of climate projects, and how project design and implementation choices shaped by funds such as the CTF can promote a conducive policy environment. This Results Deep Dive examines the role of government support and enabling environment in the CTF portfolio and finds that more recently approved CTF projects increasingly include components to support policies and strategies that are conducive to climate impact. Out of the 125 MDB-approved completed CTF projects, 20 percent of the total project count includes a component or subcomponent dedicated to such activities; these projects account for 17 percent of total CTF financing.