Guarantees for Green Markets: Potential and Challenges
This publication outlines the challenges of investing in low-carbon and climate-resilient technologies and activities in Latin America and the Caribbean. It explores how guarantees can respond to those challenges and highlights the crucial role national development banks can play in structuring and funding credit-guarantee schemes for their domestic markets. Drawing on comprehensive desk research and case study examples, the publication provides a number of recommendations that national development banks should consider when designing guarantee instruments for green markets. The scarcity of funds available to finance green projects in the region results from a combination of various financial and non-financial barriers, some specific to green investments and others generic in the region. Only if properly integrated in comprehensive and well-designed programs can guarantee schemes help unlock private investment in green markets. As an implicit subsidy for private borrowers that gives them a contingent claim on government resources, guarantees have the potential to create market distortions. Such distortions are worthwhile only if the guarantee yields correspondingly high economic, social, and/or environmental benefits. Thus, no guarantee scheme should be designed without a thorough cost-benefits analysis.