This chapter by Naoyuki Yoshino and Farhad Taghizadeh-Hesary, from the book “Financing for Low-carbon Energy Transition”, shows that by taxing carbon dioxide (CO2), sulphur dioxide (SO2), and nitrogen oxides (NOx) and allocating those tax revenues to Hometown Investment Trust Funds (HITs), Renewable Energy (RE) projects will become more feasible and more interesting for hometown investors, hence the supply of investment money to these funds will increase. One of the main obstacle to the development of RE projects is the lack of access to finance. Because of the Basel capital requirement, and because most RE projects are considered to be risky projects by the financiers, hence their reluctancy to lend them or they lend at high interest rates. For smaller-size energy projects, this chapter provides a theoretical model for combining utilization of carbon tax and a new way of financing risky capital (i.e. HITs).
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