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23ECONOMIC SCIENCES
FINANCIAL INCENTIVES TO DEVELOP THE GREEN INFRASTRUCTURE AND ENERGY
Petlenko Yu.,
PhD in Economics, Associate Professor, Associate Professor of the Department of Finance, Taras Shevchenko National University of Kyiv, Ukraine
Pohribna N.,
PhD in Economics, Associate Professor, Associate Professor of the Department of Finance, Taras Shevchenko National University of Kyiv, Ukraine
Chervinska T., PhD in Sociology, Associate Professor, Associate Professor of the Department of Theory and History of Sociology, Taras Shevchenko National University of Kyiv, Ukraine
Kapustian O.,
Dr. Sci. (Physics & Mathematics), Senior Researcher, Deputy Dean for Scientific and International Work, Faculty of Computer Science and Cybernetics, Taras Shevchenko National University of Kyiv, Ukraine
Pysmenna M. Doctor of Economics, Professor, Dean of the Faculty of Management, Flight academy of National Aviation University, Ukraine
Abstract
The paper follows an examination of the financial incentives issue to develop the green infrastructure and energy in the world practice and in Ukraine under the conditions of growing interest in the environmentally sustainable development. The comprehensive financial and environmental issue is discussed within the following framework - examining the essence of financial incentives to develop the green infrastructure and energy, the particular incentives, their features and barriers for interaction with the involved parties. The article states that currently the green infrastructure and energy is becoming an integral component of achieving sustainable development aims in creating the eco-friendly economy, defining new environmentally sustainable directions and evidence for the participation of the financial system in environmentally responsible investments.
Keywords: financial incentives, green infrastructure, green energy, green investment, green bonds.
Introduction. Participation in financing to develop green infrastructure and energy provides a solution to a number of problems facing investors and financial institutions, namely an increase in reputation capital as a result of the enhanced public opinion in favour of environmentally sustainable development; reducing exposure to risks that are associated with the environment; increasing competitiveness as a result of gaining experience in financing green industries; increasing the profitability of financial transactions when using financial incentives to develop green infrastructure and energy.
Evidently, ensuring sustainable support for the green infrastructure and energy requires significant financial incentives. The financial costs of financing the green projects, as announced by international organizations, in such important areas as energy, transport infrastructure, construction, fresh water supply, etc., may amount to tens of trillions of dollars in the nearest future [1, p. 3; 2, p. 7]. At the same time, significant disruptions are evident between the financing needs of green infrastructure and energy and the existing opportunities to cover them. Initially, government programs have been the main and practically the only source of financing for those green initiatives [9], but the state,
although it retains its important role, cannot, due to the existing budgetary constraints, solve the problem of financing the green infrastructure and energy at its own. That is why the issue of attracting additional financial incentives to draw the private capital is especially acute.
Problem statement. The transition to a sustainable and low-carbon economy, green infrastructure and energy requires significant investment from both the public and private sectors.
In contrast, financial and economic instruments create incentives to reduce negative environmental impact, but they do not identify specific technologies for reducing the pollution. The choice of instruments is left to the entity - the contaminant. However, understanding the important fact that in cases where the costs of abatement are the same for all such entities, both the regulatory instruments and financial incentives may be the best policy choice [7].
The key purpose of creating financial incentives for green infrastructure and energy is to help businesses raise finance for sustainable production.
Analysis of recent research and publications. The notion of "financial incentives to develop the green infrastructure and energy" has different interpretations
(broader or narrower), which differ in individual countries and among individual researchers.
For the purposes of our research, we consider it appropriate to take as a basis a fairly broad definition of "green finance" given in the G20 Report, and consider the financial incentives to develop the green infrastructure and energy as a set of measures to promote investments that provide environmental benefits in the broader context of environmentally sustainable development. These environmental benefits include, inter alia, reduced air, water and soil pollution, reduced greenhouse gas emissions, more efficient use of existing natural resources, mitigation and adaptation to climate change, and co-benefits. In addition, such financial incentives promote for the expansion of accounting for environmental impact and the inclusion of environmental parameters in risk analysis in order to support environmentally friendly investments and contain environmentally hazardous investments [3, p. 5]. At the same time, we would like to notice that the financial incentives to develop the green infrastructure and energy both contributes to the improvement of the environment, which is important by itself, but also allows mobilizing more investment for the development of green industries, thereby improving the social climate by creating new jobs and increasing the growth potential of the global economy.
According to the document by WHO "Environmentally sustainable health systems: a strategic document", the list of financial incentives is mentioned, namely: "A range of financial incentives have been used to encourage environmental sustainability in several sectors, including low-interest financing, tax incentives and seed funding to support innovation; their success depends critically on their structure and application" [2].
Another report by the UN "Critical Issues in Implementation of Environmental Policies UNECE Environmental Performance Review Programme" shows that in the 1990's, following advice from the international community most of the countries of Eastern Europe, the Caucasus and Central Asia (EECCA) and South East Europe (SEE), which conducted Environmental Performance Reviews, "introduced a range of economic instruments (pollution charges, taxes on natural resources, user charges for urban environmental services, etc.) to increase revenues to finance environmental protection expenses. In most cases, however, economic instruments were not conceived as incentives, but rather as instruments to finance general reforms and budget deficits. Lack of control over the use of economic instruments and transparency in their application, low collection rates and ineffectiveness of economic incentives as a means of building commitment to environmental protection have contributed to the fact that these instruments have generally been ineffective" [1].
Today, Ukraine lacks effective financial instruments that would stimulate the green infrastructure and energy, and the environmental modernization of Ukrainian enterprises in general. The environmental funds, that are created in many countries of the world have their intended use. Therefore, Ukraine needs to
create such an environmental fund as a separate legal entity, being not just a line item in the state budget. The Fund should be able to adopt various programs for all types of incentives, including the financial ones, and attract international finance.
In our opinion, the most effective mechanism for the development of the green infrastructure and energy is to attract finance from the decarbonization fund and cooperation with banks [6]. The appropriate amount of financing could be distributed according to certain criteria of the modernization program into the green infrastructure and energy through the lending system, covering the body of the loan or interest, being in practice one of the most effective and fastest mechanisms, according to the international experience.
However, straightforward and understandable financial incentives to work on the decarbonization of the economy using private funds, are needed. So far, Ukraine has the is the "green electrometallurgy" legislation [4] as a unique incentive, which exempts low-emission steelworks from additional payments to renewable energy producers. For enterprises whose CO2 emissions meet the European targets of up to 250 kg CO2 per ton of steel, a discount on electricity is to be provided, (approximately 5-7%) [8].
Ukraine already has successful examples of such environmental modernization that meets the requirements of the European Green Deal performed by private investors in Dnepropetrovsk, Zaporizzhia and Donetsk regions. There are five electric steel-making enterprises Interpipe Steel, Elektrostal, Energomashspetsstal, Dneprospetsstal and Azovelec-trostal.
However, this regulation does not have an appropriate mechanism for its practical implementation in Ukraine. Therefore, even after the adoption of the relevant law of Ukraine "On Amendments to Certain Laws of Ukraine on Improving Conditions for Supporting Electricity Production from Alternative Energy Sources" [4], the incentive is not in action due to lack of developed necessary regulations by the Cabinet of Ministers of Ukraine.
The state can play an important role in financial stimulation for green infrastructure and energy in many ways. The first is the development of a socially responsible state policy that creates the necessary institutional and regulatory prerequisites for the promotion of financing the green projects. The second is direct budget financing (subsidies), tax incentives and other fiscal policy measures. Finally, the third is to support private financing of green infrastructure and energy via a system of guarantees, public-private partnerships, and the introduction of new market standards and instruments. The state, directly or indirectly via banks with state participation, can reduce both risks and costs for investors, encouraging them to participate in green infrastructure and energy projects.
A noteworthy instrument of financial incentives for green infrastructure and energy from the banking side is the securitization of loans - the issuance of green securities, including green bonds, secured by debt obligations [5]. Today in the world banking sector plays the
leading role in financing small and medium-sized businesses, that is why it is potentially relevant to induce the participation of small and medium-sized banks via the financial incentives to support the green infrastructure and energy financing through various green projects.
The idea of expanding the scope of financial incentives for green infrastructure and energy through the wider use of new financial technologies, in particular digital finance, has become widely discussed recently, including for mobilizing funds from small and medium investors and providing loans to small companies [6].
Justification of the social significance of projects on the green infrastructure and energy should be an incentive for the implementation of projects on alternative energy in order to save energy in the domestic economy. In Ukraine energy resources require serious injections of funds, specific and understandable mechanisms for financial stimulating for the development of renewable energy sources should be accelerated via subsidizing energy saving investment projects, tax incentives for business entities that successfully implement energy saving programs, regulation of energy tariff policy, development of penalties for inefficient use of energy resources.
Conclusions and discussion.
As a result, we can list a number of activities required to develop the green infrastructure and energy along with particular issues to be taken care of. Firstly, the development and support of specialized institutional investors, such as green development banks, environmental funds. Secondly, the measures of monetary and fiscal policy in the field of financial incentives for green infrastructure and energy - preferential green loans; bonds; IPO mechanisms, etc. Thirdly, development and strengthening of financial infrastructure for green infrastructure and energy requires low carbon economy development, rating system, green stock indices, global network of institutions. Fourthly, the development of a legal infrastructure to support green infrastructure and energy, namely regulating the insurance, liability of creditors, mandatory environmental disclosure requirement, etc.
References
1. Critical Issues in Implementation of Environmental Policies UNECE Environmental Performance Review Programme, October 2007 // UNITED NATIONS.
2. Environmentally sustainable health systems: a strategic document (2017)// WHO Regional Office for Europe. https://www.euro.who.int/data/as-sets/pdf_file/0004/341239/ESHS_Revised_WHO_we b.pdf
3. G20 Green Finance Synthesis Report. G20 GFSG. 15 July 2016. 35 p. http ://www. g20.utoronto.ca/2016/greenfinance -syn-thesis.pdf
4. Law of Ukraine "On Amendments to Certain Laws of Ukraine on Improving Conditions for Supporting Electricity Production from Alternative Energy Sources" // Verkhovna Rada of Ukraine. from 21.07.2020 № 810-IX. http://search.liga-zakon.ua/l_doc2.nsf/link1/T200810.html
5. Petlenko Yu., Pohribna N. Green bonds to finance the decarbonization projects / The scientific heritage. Vol. 4, No 70 (70). 2021. P. 3-6. DOI: 10.24412/9215-0365-2021-70-4-3-6
6. Petlenko Yu.V., Pohribna N.V. Transformation of the financial system in the conditions of de-carbonization of the economy // European scientific discussions. Proceedings of the 9th International scientific and practical conference. Potere della ragione Editore. Rome, Italy. 2021. Pp. 322-328. URL: https://sci-conf.com.ua/ix-mezhdunarodnaya-nauchno-praktich-eskaya-konferentsiya-european-scientific-discussions-18-20-iyulya-2021 -goda-rim-italiya-arhiv/
7. The Financial System We Need. Aligning the Financial System with Sustainable Development. Policy summary. UNEP Inquiry Report. UNEP. Geneva, Switzerland. October 2015. http://unepinquiry.org/wp-content/uploads/2015/11/The_Financial_Sys-tem_We_Need_Policy_Summary_EN
8. Ukrainian enterprises lack incentives for eco-modernization - Deputy Minister of Ecology // Agency for Industrial Policy.https://www.min-prom.ua/news/268375.html?fbclid=IwAR2MMMS5E _zkkiTUcEm4lsFS6jQPXGtymYlVoQ8x41nQSHKD-M6ZDLFAx7c
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