## Climate Policies as a Catalyst for Green FDI

_IMF Working Papers, March 1, 2024_

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## Bibliographic details
- Authors: Samuel Pienknagura
- Published: March 1, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400269448.001

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### Summary and research question
- Assesses the role of climate policies as a catalyst of low carbon technologies deployment through foreign direct investment (FDI).
- Leverages detailed cross-border project-level information to identify “green” FDI.
- Core finding: a higher number of active climate policies is associated with higher levels of green FDI inflows.

### Key empirical findings
- A higher number of active climate policies in a recipient country is associated with higher levels of green FDI inflows.
- Climate policies do not appear to be linked to lower levels of non-green projects, suggesting relatively small overall costs from the green transition.
- Heterogeneity across sectors and instruments:
  - The association between climate policies and green projects is particularly strong in energy and manufacturing.
  - Stronger effects when the recipient's climate portfolio is tilted towards binding policies (e.g., taxes and regulation) and expenditure measures.
- Policy spillovers:
  - Larger climate policy portfolios in the source country are linked to higher green FDI outflows.
  - Green subsidies in source countries can discourage green FDI outflows, implying subsidies could hamper efforts to deploy low-carbon technologies across countries.

### Policy implications and interpretation
- Expanding the number of active climate policies can attract green FDI without reducing non-green projects, indicating limited short-term trade-offs.
- Binding policies (taxes, regulation) and expenditure measures in recipient countries are particularly effective at catalyzing green FDI in energy and manufacturing.
- Source-country policy design matters for international deployment of low-carbon technologies:
  - Broad, binding climate policy portfolios in source countries can promote green FDI outflows.
  - Green subsidies may have unintended cross-border effects by discouraging green FDI outflows and thus potentially limiting international diffusion of low-carbon technologies.

### Keywords and thematic scope
- Balance of payments; Climate change; Climate policy; Environment; Foreign direct investment; Greenhouse gas emissions; Tariffs; Taxes.
- Keywords: Climate change, Climate policies, Climate policy, FDI, FDI inflow, FDI outflow, Foreign direct investment, Global, green FDI, Greenhouse gas emissions, low carbon technologies, policy instrument, policy spillover, renewable energy, Tariffs.

*Source: Climate Policies as a Catalyst for Green FDI — Samuel Pienknagura, March 1, 2024.*

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_Source: https://www.imf.org/en/publications/wp/issues/2024/03/01/climate-policies-as-a-catalyst-for-green-fdi-545450_