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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 efficiently.
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.
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