Catalyzing Climate Results with Pull Finance

Benjamin Stephens
Sebastián Chaskel
Mariana Noguera
Maria del Mar Oyola
Lucía Pérez
Mateo Zárate
November 23, 2022

As Dissanayake (2021) and Dissanayake and Camps (2022) have argued, pull financing is an underutilized tool with the potential to drive the development and adoption of critical technologies necessary to address the globe’s climate crisis. The paper builds the case further and provides tangible examples by presenting two case studies that illustrate how pull climate finance can be used to deliver urgently needed climate results and support development objectives across low- and middle-income countries.              

The case studies respond to two pressing issues contributing to the globe’s climate challenge: (1) the growing use of energy intensive residential air conditioning and (2) the common use of stubble burning agricultural practices. For both cases, we propose that an Advance Market Commitment (AMC), a form of pull finance, could be used as a promising tool to enable technology development and adoption, driving a market shift towards a new and cleaner equilibrium. In the case of cooling, we outline the potential of an AMC to drive a sustained shift in the Indian market by enabling the scale-up of cleaner cooling technologies, driving down their costs to ensure their future competitiveness. In the case of stubble burning, also focused on India, we show that an AMC could offer incentives for producers to innovate to drive short-run take-up of stubble burning alternatives, facilitating a sustained market shift to stubble burning alternatives in the medium-term. We find both cases hold promise to achieve substantial and cost-effective emission reductions, as well as important development benefits in the form of both economic and health outcomes—a finding which should justify significant investments.

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