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Poorly implemented energy subsidies are economically costly to taxpayers and damage the environment. This report aims at providing the emerging lessons form a representative sample of case studies in 20 developing countries that could help policy makers to address implementation challenges, including overcoming political economy and affordability constraints. The sample has selected on the basis of a number of criteria, including the country’s level of development (and consumption), developing country region, energy security and the fuel it subsidies (petroleum fuel, electricity, natural gas). The case studies were supported by data collection related to direct budgetary subsidies, fuel and electricity tariffs, and household survey data.The analysis provides strong evidence of the success of reforms in reducing the associated fiscal burden. For the sample of countries, the average energy subsidy recorded in the budget was reduced from 1.8% in 2004 to 1.3%GDP in 2010. The reduction of subsidies is particularly remarkable for net energy importers. Pass-through of international fuel prices was also notable in the case of electricity generated by fossil fuel. For the sample of countries, the average end-user electricity tariff increased by 50%, from USD 6 cents in 2002 to USD 9 cents per kWh in 2010.In spite of the relatively price inelastic demand for gasoline and diesel, fossil fuel consumption in the road sector (per unit of GDP) declined in the 20 countries examined from 53 (44) in 2002 to about 23 kt oil equivalent per million of GDP in 2008 in the case of gasoline (Diesel). The most notable decline in consumption was recorded in the low and lower middle income countries. This reflects the much higher rate of growth in GDP in this group of countries and underlines the opportunities to influence future consumption behavior rather than modifying the existing consumption patterns, overcoming inertia and vested interests. Similar trends are recorded for power consumption.While there is no one-size-fits-all model for subsidy reform, implementation of compensatory social policies and an effective communication strategy, before the changes are introduced, reduces helped with the implementation of reforms.

This book explores energy savings performance contracts (ESPCs) as a means of overcoming some of the more difficult hurdles in promoting energy efficiency in public facilities. ESPCs represent a very attractive solution to many of the problems that are unique to public agencies, since they involve outsourcing a full project cycle to a service provider. From the detailed audit through implementation and savings verification, ESPCs can relieve public agencies of bureaucratic hassles, while service providers can secure the off-budget project financing and be paid from the actual energy savings, thus internalizing project performance risks. ESPC bidding also allows public agencies to select from a range of technical solutions, maximizing the benefit to the agency. Global experience suggests that ESPCs have been more effective at realizing efficiency gains than many other policy measures and programs, since the service providers have a vested interest in ensuring that a project is actually implemented. Many of the country governments interviewed for the study also saw enormous potential in bundling, financing, and implementing energy efficiency projects on a larger scale in the public sector, a method that increases the rate of efficiency gains and creates further benefits through economies of scale.

Sustainable finance is a rich field of research. Yet, existing reviews remain limited due to the piecemeal insights offered through a sub-set rather than the entire corpus of sustainable finance. To address this gap, this study aims to conduct a large-scale review that would provide a state-of-the-art overview of the performance and intellectual structure of sustainable finance. To do so, this study engages in a review of sustainable finance research using big data analytics through machine learning of scholarly research. In doing so, this study unpacks the most influential articles and top contributing journals, authors, institutions, and countries, as well as the methodological choices and research contexts for sustainable finance research. In addition, this study reveals insights into seven major themes of sustainable finance research, namely socially responsible investing, climate financing, green financing, impact investing, carbon financing, energy financing, and governance of sustainable financing and investing. To drive the field forward, this study proposes several suggestions for future sustainable finance research, which include developing and diffusing innovative sustainable financing instruments, magnifying and managing the profitability and returns of sustainable financing, making sustainable finance more sustainable, devising and unifying policies and frameworks for sustainable finance, tackling greenwashing of corporate sustainability reporting in sustainable finance, shining behavioral finance on sustainable finance, and leveraging the power of new-age technologies such as artificial intelligence, blockchain, internet of things, and machine learning for sustainable finance.

As low-carbon products increasingly become popular among consumers, the manufacturers have begun to advocate low-carbon supply chain to meet consumers’ low-carbon preferences. However, low-carbon investments inevitably bring financing constraints to the supply chain. To provide a potential solution to relieve the financial constrain, we established a two-echelon supply chain consisting of a low-carbon product manufacturer and a retailer. Supply chain members can effectively solve their financing constraints by utilizing portfolio financing consisting of the bank loan (BL), trade credit (TC), and asset-based securitization (ABS). We found that under the financial mode of BL and DC (Dual credit refers to the combination of bank loan and trade credit), only when consumers are highly price-sensitive to low-carbon products can tax preference incentivize the manufacturer to reduce carbon emissions. Under DC mode, consumer’s strong low-carbon preference will push up the retail price level of low-cost products; Under portfolio financing with ABS & DC, consumers’ strong low-carbon preference will force up the retail price level of low-carbon products with low price sensitivity. Compared with pure BL and DC, the cash flow under portfolio financing is the tightest. Besides, we took capital demand of the multi-stage scenario into consideration. Moreover, we found that the tax rate and tax deduction ratio of carbon emissions reduction will affect the retail price, wholesale price, and financing decision in the three financial modes when satisfying certain conditions.

This paper proposes an ensemble forecasting model for carbon market volatility with structural factors and non-structural Baidu search index. Firstly, wavelet analysis is introduced into carbon price denoising for obtaining carbon market volatility. Secondly, carbon market volatility forecasting is converted into a multi-class forecasting problem. Thirdly, synthetic minority over sampling technique tomek links (SMOTETomek) is used to address the class imbalance problem. Fourthly, extreme gradient boosting (XGBoost) is used for carbon market volatility forecasting, and genetic algorithm (GA) is employed into synchronously optimize all parameters of XGBoost. Taking Guangdong and Hubei carbon markets as samples, the proposed model has higher overall forecasting performance and higher minority class forecasting performance when compared with other popular prediction models. The sensitivity analysis verifies that the proposed model is robust.

There is an increasing likelihood that governments of major economies will act within the next decade to reduce greenhouse gas emissions, probably by intervening in the fossil fuel markets through taxation or cap & trade mechanisms (collectively “carbon pricing”). We develop a model to capture the potential impact of carbon pricing on fossil fuel stocks, and use it to inform Bayesian portfolio construction methodologies, which are then used to create what we call Smart Carbon Portfolios. We find that investors could reduce ex-post risk by lowering the weightings of some fossil fuel stocks with corresponding higher weightings in lower-risk fossil fuel stocks and/or in the stocks of companies active in energy efficiency markets. The financial costs of such de-risking strategy are found to be statistically negligible in risk-return space. Robustness of the results is explored with alternative approaches.

We investigate the impact of pricing policies (i.e., flat pricing versus peak pricing) on the investment levels of a utility firm in two competing energy sources (renewable and conventional), with a focus on the renewable investment level. We consider generation patterns and intermittency of solar and wind energy in relation to the electricity demand throughout a day. Industry experts generally promote peak pricing policy as it smoothens the demand and reduces inefficiencies in the supply system. We find that the same pricing policy may lead to distinct outcomes for different renewable energy sources due to their generation patterns. Specifically, flat pricing leads to a higher investment level for solar energy, and it can lead to still more investments in wind energy if a considerable amount of wind energy is generated throughout the day. We validate these results by using electricity generation and demand data of the state of Texas. We also show that flat pricing can lead to substantially lower carbon emissions and a higher consumer surplus. Finally, we explore the effect of direct (e.g., tax credit) and indirect (e.g., carbon tax) subsidies on investment levels and carbon emissions. We show that both types of subsidies generally lead to a lower emission level but that indirect subsidies may result in lower renewable energy investments. Our study suggests that reducing carbon emissions through increasing renewable energy investments requires careful attention to the pricing policy and the market characteristics of each region. This paper was accepted by Serguei Netessine, operations management .

The call for greener and more sustainable corporate practices triggered a surge in corporate restructuring. In this study, we investigate the impact of carbon emissions on the market reaction to announcements of corporate restructuring activities. Using a sample of US firms, we find that investors discount the value of corporate restructuring announcements when firms have higher levels of carbon emissions. Our results indicate that emissions are negatively associated with cumulative abnormal returns (CAR), cumulative total returns (CTR), and buy and hold abnormal returns (BHAR) around announcements. This effect is more pronounced for firms with a lower risk of bankruptcy, those financially constrained, and those with lower growth opportunities. We also find that high emissions at announcements are negatively associated with post-restructuring financial and market performance. Overall, our results highlight the growing implications of firm-level carbon emissions for corporate market valuations, especially amongst firms undertaking restructuring.

In the pursuit of low-carbon sustainable development, many nations have implemented stringent carbon taxes to reduce greenhouse gas emissions. These rigorous carbon tax regulations compel manufacturers to invest in green technologies, which can place a significant financial burden on them. To mitigate this strain, manufacturers may turn to bank loans or supplier-based financial incentives, such as supplier financing and energy performance contracting, to fund their green investments. Therefore, this paper examines the interplay between suppliers’ green financial incentives and manufacturers’ green finance options under carbon tax policies, aiming to identify Pareto optimal outcomes. Through game theory, some conclusions are obtained. First, manufacturers generally prefer supplier-based financial incentives over bank loans, with energy performance contracting favored at low tax rates and supplier financing at high tax rates. Second, from an economic standpoint, Pareto optimality between suppliers and manufacturers is achieved only through supplier financing under high carbon tax rates and low supplier financing interest rates. Third, energy performance contracting emerges as the optimal green financial incentive for promoting low-carbon sustainable development, thereby contributing to the achievement of sustainable development goals.