Event Summary
from Belfer Center for Science and International Affairs

What Is the Green Swap?

By separating development and climate finance, this novel financing tool developed by Belfer Center experts Akash Deep, Henry Lee, and Wasim Tahir can make green infrastructure investments more feasible in emerging economies.

Lahendong Geothermal Plant.
Lahendong Geothermal Plant in Manado, North Sulawesi Province, Indonesia. Valuing the climate benefits of geothermal projects in Ulubelu and Lahendong attracted funding from the World Bank and the Clean Technology fund, making the projects competitive with equivalent coal power plants.

Despite rapid growth in energy demand, Emerging Markets and Developing Economies (EMDEs) outside China receive only 15% of global clean energy investments. Faced with high capital costs and high upfront investment costs of clean energy projects, EMDEs often direct their limited resources to fossil fuel projects, locking in carbon-intensive infrastructure that threatens global climate goals.

In a January webinar hosted by the Belfer Center’s Environment and Natural Resources Program, Harvard Kennedy School experts introduced the Green Swap, a framework to address this challenge by disaggregating the climate and development components of renewable energy projects.

“By separating the climate and development components in terms of risks, costs and impact, each can be matched with the appropriate investors, leading to a more optimal capital structure for renewable energy projects. This ultimately lowers the cost of capital, thereby unlocking greater and higher-quality investment for EMDEs,” wrote Postdoctoral Research Fellow Wasim Tahir, one of the co-authors of the framework along with Akash Deep, Senior Lecturer in Public Policy at Harvard Kennedy School; Henry Lee, Director of the Environment and Natural Resources Program; and Joshua Doyle MPP 2025.

Watch the recording and read key points and a transcript of the discussion below.

Watch the Recording

Key Points from the Discussion

  • The Problem for Emerging Economies and Developing Economies: Despite increasing investments in clean energy, emerging economies continue to heavily invest in fossil fuels, particularly coal. High capital costs in these regions deter investment in renewable energy due to financial risks (sovereign, construction, currency, demand).
  • The Green Swap Concept: The Green Swap separates climate and development finance to make renewable energy investments more viable. Development finance from local investors is channeled toward economic benefits like productivity and poverty alleviation, while climate finance from global investors goes toward global benefits such as carbon reduction.
  • How the Green Swap Works: For a proposed “green” project, a benchmark “brown” project (e.g., coal plant) is established as a reference. Local investors finance the cost equivalent to the brown project. Global investors cover the additional costs that make the green project preferable to the hypothetical brown project, in exchange for climate benefits (e.g. carbon reductions). This lowers the financing burden on emerging economies while ensuring green projects get funded.
  • Next Steps: Further research is needed on integrating the Green Swap into the strategies of multilateral development banks, on developing valuation methods for climate benefits, and on investigating the Green Swap’s compatibility with carbon markets (e.g., EU CBAM, Article 6 credits).

The Green Swap is a novel financing tool aimed at making green infrastructure investments more feasible in emerging economies by separating development and climate finance. While challenges exist, particularly in establishing credible carbon markets, the concept provides a promising pathway for accelerating decarbonization without compromising economic growth.

Akash Deep and Wasim Tahir presented this work at two forums at the United Nations: the Financing for Development Dialogues (December 2024) and the Development Cooperation Forum (March 2025). Their conceptual framework has been recommended for inclusion in the second draft of the Outcome document of the decennial Fourth International Conference of Financing for Development which is to be finalized this summer in Seville, Spain.

Read the Transcript

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