Editing IPCC:AR6/SRCCL/Chapter-7 (section)

==== 7.4.7.3 Innovative financing approaches for transition to low-carbon economies ====

<div id="section-7-4-7-3-innovative-financing-approaches-for-transition-to-low-carbon-economies-block-1"></div>

Traditional financing mechanisms have not been sufficient and thereby leave a gap in facilitating a rapid transition to a low-carbon economy or building resilience (Geddes et al. 2018 <sup>[[#fn:r877|877]]</sup> ). More recently there have been developments in more innovative mechanisms, including crowdfunding (Lam and Law 2016 <sup>[[#fn:r878|878]]</sup> ), often supported by national governments (in the UK through regulatory and tax support) (Owen et al. 2018 <sup>[[#fn:r879|879]]</sup> ). Crowdfunding has no financial intermediaries and thus low transaction costs, and the projects have a greater degree of independence than bank or institution funding (Miller et al. 2018 <sup>[[#fn:r880|880]]</sup> ). Other examples of innovative mechanisms are community shares for local projects, such as renewable energy (Holstenkamp and Kahla 2016 <sup>[[#fn:r881|881]]</sup> ), or Corporate Power Purchase Agreements (PPAs) used by companies such as Google and Apple to purchase renewable energy directly or virtually from developers (Miller et al. 2018 <sup>[[#fn:r882|882]]</sup> ). Investing companies benefit from avoiding unpredictable price fluctuations as well as increasing their environmental credentials. A second example is auctioned price floors, or subsidies that offer a guaranteed price for future emission reductions, currently being trialled in developing countries, by the World Bank Group, known as the Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) (Bodnar et al. 2018 <sup>[[#fn:r883|883]]</sup> ). Price floors can maximise the climate impact per public dollar while incentivising private investment in low-carbon technologies, and ideally would be implemented in conjunction with complementary policies such as carbon pricing.

In order for climate finance to be as effective and efficient as possible, cooperation between private, public and third sectors (e.g., non-governmental organisations (NGOs), cooperatives, and community groups) is more likely to create an enabling environment for innovation (Owen et al. 2018 <sup>[[#fn:r884|884]]</sup> ). While innovative private sector approaches are making significant progress, the existence of a stable policy environment that provides certainty and incentives for long-term private investment is critical.

<span id="enabling-effective-policy-instruments-policy-portfolio-coherence"></span>