Public-Private Partnerships as a policy instrument to advance green growth

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Managing Energy and Climate Change Finance Projects, Inter-American Development Bank
25 August 2014

Public-Private Partnership (PPP) has become a popular concept for green growth projects. Part of the attraction of PPP is its traditional benefits – financial value for the taxpayers from risk diversification, synergies through knowledge diffusion and increasing accountability and transparency among stakeholders, etc.  When the authors for the report Green Growth in Practice: Lessons from Country Experiences got together a year and a half ago, we were curious to find out what would be the additional advantages of introducing this partnership as a policy instrument to advance green growth.

We first expanded the scope of the partnership beyond PPP to Public-Private-Collaboration (PPC) to include those practices with governance structure that allows more discretion to the private entities. Numerous case studies were analyzed to identify appropriate pairing of different capabilities that public and private stakeholders can bring to the table for the best outcome. Fourteen cases were analyzed to demonstrate different types of PPC in our chapter. Thorough investigation of these best practices resulted in a number of possible areas where PPC can better support green growth, three of which are explored in depth in the chapter.

First, PPC plays an important role in spurring innovation and further creating markets. Government can support R&D in the initial stage through financial and non-financial assistance, bringing forward technology breakthrough and reducing the risks of private sector investment. As technologies mature, the public sector then can adopt policies that provide “long, loud and legal” policy frameworks to unlock capital for green growth[1]. Continuous signal for sufficient investment certainty to the private sector will also contribute to building confidence and ensuring the enabling environment for another innovation.

Second, PPC has proven effective in management of natural resources. Government policies have existed to have control over natural resources to prevent over-exploitation through quotas, allocation of access rights or stricter measures. Such public led approaches have often failed mainly due to the limited government capacity of monitoring and enforcement. PPC, on the other hand, can create a shared understanding of the value of natural resources, enabling the development of more effective management practices and participation from the private sector. We were able to identify several good practices, among which ecosystem valuation was introduced as a popular instrument to encourage the private sector’s role through providing economic incentives. As a growing trend yet complicated scheme in practice, this policy instrument is worthwhile to be analyzed in depth for the next GGBP publication.

Third, PPC enables the development of large-scale green infrastructure as well as smaller scale distributed systems. As PPP has traditionally proven to work well in infrastructure projects, certain PPC approaches also play a critical role in advancing green infrastructure more cost effectively. Another interesting finding was that PPC is especially valid for smaller scale distributed infrastructure investment by overcoming financial constraints for new market development and weakest link problems in the system. Examples in the chapter include irrigation systems for smallholder farmers, infrastructure development for production and distribution of biodiesel, off-grid rural renewable energy, and the use of ICT infrastructure within the agricultural sector in developing countries.

As we expected our main audience to be policy makers for green growth, we also introduced common success factors that they need to consider, see below:

  • The establishment of a forum that brings actors together in a way that builds trust and enables innovation.
  • The development of a shared vision, supported by clear goals, clear definition of roles and responsibilities.
  • Transparency and accountability within the partnership and of its outcomes.
  • Deep and thorough stakeholder engagement at all stages.

Interviewing government officials and experts from the private sector, we concluded that PPC, is not one-size-fit-all solution. Stakeholders should consider and balance risks, costs and benefits of PPC approaches before undertaking a project and decide whether to take on the PPC approach and which types of PPC can work best.


[1] Hamilton, K. (2009). Unlocking Finance for Clean Energy: The Need for ’Investment Grade’ Policy Energy. Environment and Development Programme Paper (No. 09/04). London: Chatham House.

 


The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.