The policy coordinator role of national development banks in scaling climate finance: Evidence from the renewable energy sector

Abstract

ABSTRACT This paper investigates the roles of national development banks (NDBs) in mobilizing climate finance for domestic renewable energy deployment by conducting a comparative analysis based on a developed country and two developing countries with NDBs, namely Germany with KfW, China with CDB, and India with IREDA. The research argues that, besides working as a direct financier and catalytic mobilizer for climate finance, NDBs can serve as a policy coordinator to amplify the effectiveness of climate policies as countries are scaling up finance for climate related programmes. NDBs play this policy coordination role through three mechanisms: 1) providing expertise and channelling market information/feedbacks to the policymaking process to advance renewable energy designs and refinement; 2) mitigating policy gaps or barriers that cannot be, or can only partially be, alleviated by existing renewable energy policies; and 3) providing a coherent and holistic basket of financial services to concentrate resources behind national priorities. The coordinator role is enabled by NDBs’ state-ownership, proximity to local markets and local contexts, and information and expertise. This study also identifies the differences of NDBs’ roles in supporting renewable energy finance between developed and developing countries. The research contributes to the existing literature by conducting a comparative analysis of NDBs in climate finance between developed and developing countries and by clarifying the role that NDBs have in empowering climate policies to facilitate investment in renewable energy. Key policy insights Governments should focus on a stable and well-designed policy framework to scale up climate finance. NDBs can then serve in a policy coordinator role to amplify the impacts of climate policies. NDBs can provide expertise and channel market information/feedbacks to advance design of climate finance policies. NDBs can mitigate barriers that cannot be, or can only partially be, alleviated by existing climate policies. NDBs can provide a coherent and holistic basket of financial services to concentrate resources behind national priorities.