Editing IPCC:AR6/WGIII/Chapter-15 (section)

==== 15.6.2.1 The Public-Private and Mobilisation Narrative and Current Initiatives ====

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Financing by development finance institutions and development banks aims to address market failures and barriers related to limited access to capital as well as provide direct and indirect subsidisation by accepting higher risk, longer loan tenors and/or lower pricing. Many development and climate projects in developing and emerging countries have traditionally been supported with concessional loans by development finance institutions and/or international financial institutions (DFIs/IFIs). With an increasing number of sectors becoming viable and increasing complaints of private sector players with regard to crowding out ( [[#Bahal--2018|Bahal et al. 2018]] ), a stronger separation and crowding in of commercial financing at the project/asset level is targeted. MDBs and IFIs were crucial for opening and growth in the early years of the green bonds, which represent a substantial share of issuances ( [[#CBI--2019a|CBI 2019a]] ). Drivers of an efficient private sector involvement are stronger incentives to have projects delivered on time and in budget as well as market competition ( [[#Hodge--2018|Hodge et al. 2018]] ). It remains key that the private sector mobilisation goes hand in hand with institutional capacity building as well as strong sectoral development in the host country, as a strong, knowledgeable public partner with the ability to manage the private sector is a dominating success factor for public-private cooperation ( [[#WEF--2013|WEF 2013]] ; [[#Yescombe--2017|Yescombe 2017]] ; [[#Hodge--2018|Hodge et al. 2018]] ).

Limited research is available on the efficiency of mobilisation of the private sector at the various levels and/or the theory of change attached to the different approaches as applied in classical public-private partnerships. Also, transparency on current flows and private involvement at the various levels is limited with no differentiation being made in reporting (e.g., GCF co-financing reporting). Limited prioritisation and agreement on prioritisation of sectors and/or project categories being ready and/or preferred for direct private sector involvement might become a challenge in the coming years ( ''high confidence'' ) ( [[#Sudmant--2017a|Sudmant et al. 2017a]] ; [[#Sudmant--2017b|Sudmant et al. 2017b]] ).

Public guarantees have been increasingly proposed to expand climate finance, especially from the private sector, with scarce public finance, by reducing the risk premium of the low-carbon investment opportunities ( [[#de%20Gouvello--2010|de Gouvello and Zelenko 2010]] ; [[#Emin--2014|Emin et al. 2014]] ; Studart and Gallagher 2015; [[#Schiff--2017|Schiff and Dithrich 2017]] ; [[#Lee--2018|Lee et al. 2018]] ; [[#Steckel--2018|Steckel and Jakob 2018]] ). They have the advantage of a broad coverage including the ‘macro’ country risks and to tackle the up-front risks during the preparation, bidding and development phases of the project lifecycle that deter project initiators, especially for capital-intensive and immature options. Insurances are also powerful de-risking instruments ( [[#Déau--2018|Déau and Touati 2018]] ) but they entitle the issuer to review claims concerning events and cannot cope with up-front costs. Contractual arrangements like power purchase agreements are powerful instruments to reduce market risks through a guaranteed price but they weigh on public budgets. Risk-sharing that brings together public agencies, firms, local authorities, private corporates, professional cooperatives, and institutional financiers can reduce costs ( [[#UNEP--2011|UNEP 2011]] ), and support the deployment of innovative business models ( [[#Déau--2018|Déau and Touati 2018]] ). Combined with emission taxes they can contribute to reducing credit rationing of immature and risky low-carbon technologies ( [[#Haas--2020|Haas and Kempa 2020]] ).

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