5.2 Public-Sector Finance and Investment
Public sector finance inevitably has a substantial role in investing in environmentally
sound technologies and otherwise supporting the transfer of ESTs (see also Section
2.2 in Chapter 2 on the public sector contribution
in international financial flows)1
. At a fundamental level, much of this involvement arises because the public
sector has direct responsibility for managing public and common goods, and investing
in their protection and conservation. The role of public sector finance becomes
particularly important in supporting the development and dissemination of ESTs
in the absence of efficient pricing mechanisms or other policies to incorporate
environmental costs, when the private sector finance will be unable to operate
The public sector typically directly invests in a range of infrastructure,
although this is changing. There has been increasing interest in opening public
infrastructure development to the private sector, for example, by privatising
state owned companies, opening markets to competition, and opening projects
to private finance.
The public sector can also provide various incentives (tax benefits, grants,
subsidies, etc) to private firms to encourage investment in ESTs - these can
cover R&D grants, project subsidies, support for information dissemination
and support for trade activities (note that several of these are covered primarily
in Chapter 4).
The public sector is a major purchaser of goods and services, and can use its
purchasing power to buy ESTs.
Public finance has different roles from private finance, being more important
with respect to long-term and infrastructure investment, and assumes different
roles in different sectors. For example, it remains central in the coastal-zone
adaptation and transport sectors, and still plays a large role in energy alongside
rapidly growing private finance.