Infrastructure and its services may become increasingly affected by climate change-related extreme weather events as well as by gradual, longer-term incremental changes. It is therefore essential to incentivize investment in low-carbon PPPs and to ensure that changing climate conditions and potential climate change mitigation and adaptation measures are identified and considered during the development, design and implementation of each individual PPP project.
Preparing, Procuring and Implementing Climate-Smart PPPs
- Developing Climate-Smart PPPs
- Procuring Climate-Smart PPPs
- Climate-Smart PPP Contracts
- Climate Change Risk & Insurance
Developing Climate-Smart PPPs
Assessing climate change risks and impacts and establishing appropriate plans to reduce carbon emissions and increase resilience are key for developing climate-smart PPP projects. These assessments and planning require dealing with uncertainty and developing and using forecasting models that go beyond estimations based solely on historic data and trends.
Climate considerations can, for example, be used as a parameter when conducting a Value-for-Money (VfM) analysis or a cost-benefit analysis during the project development phase:
- According to Resilient Infrastructure Public-Private Partnerships (PPPs): Contracts and Procurement – The Case of Japan, World Bank 2017, Sendai City considers resilience and business continuity in VfM analysis by comparing two scenarios: (i) one in which the project is handled by a public administrator; and (ii) one in which a private operator builds and operates the facility under a build-operate-transfer (BOT) scheme. In the second case, disaster response would require less time and fewer resources form Sendai City to evaluate damage, apply for a contingency budget, and submit documents to the municipal assembly.
Environmental (and social) impact assessments
Environmental impact assessment (EIAs) or environment and social impact assessments (ESIAs) undertaken, e.g. as part of a feasibility study, are typically used to identify and assess climate change impacts of a project as well as potential mitigation and adaptation measures. The findings can then be used as a basis for adjusting existing modalities for project design, approval, and implementation to avoid and/or minimize harm and to improve environmentally sustainable outcomes.
For sample requirements see the respective legal documents below:
This report presents the outcomes of a study analyzing the potential risks from climate change for the Khimti 1 run of the river hydro-electric power scheme in Nepal, owned and operated by the Himal Power Ltd (HPL) and proposes adaption (risk management) options for HPL to consider. The report identifies also a number of lessons for future hydro-power production in Nepal. This report presents the outcomes of a study analyzing the potential risks from climate change for the Khimti 1 run of the river hydro-electric power scheme in Nepal, owned and operated by the Himal Power Ltd (HPL). The risk analyses have assessed (within the limitations of the available information) how variability in current climate conditions together with future climate change can affect HPL’s operations and have impacts for the local communities. Adaptation (risk management) options have been proposed for HPL to consider. For the most part these measures are focused on building adaptive capacity rather than delivering adaption action. In some cases the adaptation options are for others to consider, as for example in the case of potential changes to the PPA. The report identifies a number of lessons for future hydro-power production in Nepal. These lessons will also have a relevance to the development of similar schemes in other developing countries.
Climate Risk Case Study - Hydro – Zambia, IFC 2011
Hydropower projects may be highly sensitive to climate change impacts. Water flows used by a project may be affected not only by changes in the hydrologic cycle, but also by climate related changes in the upstream water use, such as increased use of water for human consumption, agriculture, industry, or biodiversity maintenance. At the same time, the demand for electricity may also change due to climate change effects, such as increased temperatures. All these aspects can affect the performance of a project and point to the need of assessing a broader range of climate related economic, social and environmental factors in the analyses. In order to develop initial approaches to analyses of relevant factors and their significance to performance of hydropower projects. This study analyzes the KGL HP project in the Kafue basin in Zambia. Major components of the study include development of downscaled temperature and precipitation projections for the basin, modeling of hydrologic flows in the Kafue river, modeling of corresponding reservoir and energy outputs, analyses of financial implications, and considerations of natural hazards and other uses of water in the study area.
Physical infrastructure at ports and port activities may be highly vulnerable to changes in climate. [For instance, the risks could manifest through changes in the level or patterns of shipping, increased flooding affecting movements within ports and causing damage to goods stored, reduced navigability of access channels and business interruption. Some ports will also see opportunities as a result of climate change. A port’s reputation for reliability is key to its success, so ports that are more resilient to disruption from climate events should fare better. Changes in trade flows driven by climate change will also see winners and losers.] To understand the significance of these risks for a given port, this study assesses risks and opportunities for ports in general, and specifically for IFC’s client, Terminal Marítimo Muelles el Bosque (MEB), in Cartagena, Colombia.
Policies, Legislation and Regulation
Many countries have legislation in place requiring some sort of environmental (and social) impact assessment for projects that may have adverse environmental or social impacts and some countries have started taking steps to promote assessments that take climate change considerations into account. Below are some examples:
- Directive 2014/52/EU of the European Parliament and of the Council of 16 April 2014 on the assessment of the effects of certain public and private projects on the environment: The EIA process includes an assessment of the impact of projects on climate (for example greenhouse gas emissions) and their vulnerability to climate change.
- Guidance on Integrating Climate Change and Biodiversity into Environmental Impact Assessment, European Commission 2013 – guidance on how to integrate climate change adaptation in EIAs.
- Guide to the Integration of climate change adaption in the Environmental Impact Assessment (EIA) process, Caribbean Community (CARICOM), South Pacific Regional Environment Programme (SPREP), and the Canadian International Development Agency (CIDA) 2004 - operational guidance for EIA specialists on how to integrate climate risk management considerations.
- In Canada, it has been a requirement for major development projects to incorporate climate change impacts and adaptation in EIAs under the Environmental Assessment Act, 2012, as amended on June 22, 2017. The Act was repealed in August 2019 when new legislation entered into force which will be available shortly on the website of the new Impact Assessment Agency of Canada.
- Public-Private Partnership (PPP) Governing Board Resolution of December 2018 provides guidelines to ensure that identified safeguard concerns are considered during the feasibility stage and integrated into the project design. This includes safeguards related to climate change mitigation as well as resilience to climate change hazards. Annex C contains prescribed contents of the safeguard chapter of the feasibility study, including climate change and natural hazards resiliency considerations.
- Environmental Assessment Act 2005 – mandates that climatic factors need to be considered throughout Social and Environmental Assessments
- Consideration of climatic factors within Strategic Environmental Assessment (SEA), Scottish Environmental Protection Agency (SEPA), March 2010 – provides guidance on the consideration of climatic factors within Strategic Environmental Assessment (SEA)
- Climate Change (Scotland) Act
- EIA Guidelines for Assessing the Impact of Climate Change on a Project – Columbia Law School, Sabin Center for Climate Change Law has compiled EIA guidelines on the federal , state and local level for assessing the impact of climate change on a project. These guidelines provide instruction for government agencies and project proponents on how to evaluate climate risk in the context of environmental impact assessment (EIA). They are intended to facilitate an assessment of: (i) how climate change may impact a project and its surrounding environment; (ii) the implications that this may have for the performance and environmental consequences of the project; and (iii) the selection of appropriate adaptation and resilience measures to address climate-related risks.
Additional international examples are available on the website of the Columbia Law School, Sabin Center for Climate Change Law.
Standards Applied by International Financial institutions (IFIs)/Development and Commercial Banks
Many IFIs as well as and other national financial institutions address climate change risk and adaptation in their environmental and social safeguards policies, which apply to projects that they finance. Many of these institutions have also developed tools to identify and assess climate change risk.
Some examples are provided below:
African Development Bank (AfDB)
Integrated Safeguards System, Environmental and Social Assessment Procedures (ESAP), Safeguards and Sustainability Series, Volume 1 – Issue 4, November 2015 - ESAP requires an assessment of greenhouse gas emissions and vulnerability of the asset and its operations to climate change as part of the environmental and social assessment process for its public and private sector operations..
European Bank for Reconstruction and Development (EBRD)
Environmental and Social Policy of April 2019 - EBRD has integrated a climate change risk assessment into the Environmental and Social Policy and more specifically in its Performance Requirements. The Green Economy Transition (GET) Approach is EBRD’s strategy for helping countries where the EBRD works build low carbon and resilient economies.
European Investment Bank (EIB)
Environmental and Social Standards include climate-related standards.
The Equator Principles of June 2013 – Risk management framework adopted by many financial institutions for determining, assessing and managing environmental and social risk in development projects. They incorporate the International Finance Corporation's (IFC's) Environmental and Social Performance Standards and the World Bank Group’s Environmental, Health and Safety Guidelines as the relevant standards that apply to certain projects. The Equator Principles recognize the importance of climate change and aim to avoid negative impacts on project-affected ecosystems, communities, and the climate where possible. If these impacts are unavoidable - they should be minimized, mitigated, and/or offset. Annex A (Alternatives Analysis, Quantification and Reporting of Greenhouse Gas (GHG) Emissions) deals specifically with climate change. Mandatory alternative analysis to evaluate options with lower project-related GHG emissions and/or reporting of carbon-intense projects is required or recommended depending on emission levels.
Nordic Development Fund – Guidelines for Project Identification and Screening, April 2016 The Nordic Development Fund (NDF) is a joint Nordic finance institution focusing exclusively on climate change and development in low-income (LIC) and lower middle- income countries (LMIC). The Guidelines reflect core principles and strategic priorities to underline NDF’s role in channeling finance to innovative climate change interventions that reduce poverty in developing countries.
- World Bank Group (WBG)
- IFC's Environmental and Social Performance Standards define IFC clients' responsibilities for managing their environmental and social risks. Climate change as a cross-cutting topic is addressed across multiple Performance Standards.
- Environmental and Social Framework (ESF) - The ESF was launched in October 2018 and applies to all new World Bank investment project financing and enables the World Bank and Borrowers to better manage environmental and social risks of projects and to improve development outcomes.
- The World Bank Group's climate and disaster risk screening tools - Tools provide a systematic, consistent, and transparent way of considering short- and long-term climate and disaster risks in national policies, They aim to help determine the need for further studies, consultation, and/or dialogue.
Procuring Climate-Smart PPPs
Incentives for private operators to invest in climate change adaptation and mitigation can be included in PPP request for proposals (RfPs) and other bidding documents, guidance documents on project selection and evaluation of proposals, as well as PPP policies and legislation.
Examples of incentives in bidding documents or PPP/procurement legislation for private operators to invest in climate change adaptation and disaster risk management as well as low-carbon infrastructure:
1. Minimum qualifying criteria that require potential bidders to:
- Demonstrate sufficient financial and technical capacity to develop innovative low carbon solutions and to respond to disaster events;
- Provide evidence for sufficient knowledge to identify and assess carbon impacts, alternative low-carbon solutions as well as climate change events (e.g. experience in the construction of “green” buildings as demonstrated by relevant certifications);
- Prove sufficient insurance coverage with regard to potential climate-related risks;
- Submit appropriate environmental [and social] management plans as well as disaster prevention and risk response plans;
2. Technical specifications on better life-cycle performance, including reducing greenhouse gas emissions and mitigating identified climate change risks; and
3. Bid evaluation criteria that is not solely based on price, but that also assesses bidders’ low-carbon performance and competence to address climate change (for example with additional points given to bids that include innovative efforts related to greenhouse gas reduction or disaster risk management).
- Directive 2014/24/EU on public procurement and Directive 2014/25/EU on procurement by entities operating in the water, energy, transport and postal services sectors - Both Directives follow the same approach: Contracts are awarded based on the economically most advantageous tender (price, cost, quality-price ratio). Contracting authority can assess costs using a life-cycle costing approach (Article 82 and Article 67 respectively). Life cycle costing may include the costs of emissions of GHG and of other pollutant emissions and other climate change mitigation costs (Article 68 and Article 83 respectively). Technical specifications may include environmental and climate performance levels (Article 42, Annex VII and Article 60, Annex VIII respectively).
- Green Public Procurement (GPP) , European Commission 2008 – Voluntary instrument that was developed to facilitate the inclusion of environmental requirements in public tender documents across the EU member states. GPP criteria were developed for different project groups (e.g. road design, construction and maintenance) and are applicable for PPPs. The criteria are formulated in such a way that they can be integrated into tender documents.
Rijkswaterstaat (RWS), the Department of Public Works of the Ministry of Infrastructure and the Environment uses the most economically advantageous tender (MEAT) methodology, including specific sustainability criteria for infrastructure projects and services. When assessing the sustainability RWS focuses on two criteria: CO2 emissions and environmental impact. Two instruments have therefore been developed: the CO2 performance ladder and “DuboCalc”, respectively. The CO2 performance ladder is a certification system with which a tenderer can show the measures to be taken to limit CO2 emissions within the company and in projects, as well as elsewhere in the supply chain. DuboCalc is a life-cycle analysis (LCA) based tool that calculates the sustainability value of a specific design based on the materials to be used. Bidders use DuboCalc to compare different design options for their submissions. The DuboCalc score of the preferred design is submitted with the tender price. For details see Country case: Green public procurement in the Netherlands, OECD 2016.
PPP Bidding Documents
Tender Document for the Designation of a Concessionaire and Awarding a Works Concession for Airport in Sofia of 5 July 2018 as amended on 29 March 2019 published by the Republic of Bulgaria, Ministry of Transport, Information Technology and Communications - Bidding document contains low carbon incentives: For example, bidders are required to submit an environmental and social program which shall inter alia include the bidder’s approach to the increase of the airport’s use and production of renewable energy and can earn extra points during evaluation in this regard.
According to Resilient Infrastructure Public-Private Partnerships (PPPs): Contracts and Procurement – The Case of Japan, World Bank 2017 - In the case of the Sendai School Meal Supply center PPP Project, Sendai City highly evaluated proposals on engineering measures to protect and minimize seismic risks as well as nonstructural measures and institutional arrangements that enabled prompt emergency response and recovery. When disaster struck, the project recovered about 2.5 months earlier than did facilities directly operated by the government, owing to the private operator’s flexible selection of suppliers for emergency goods and equipment.
Reconstruction Motorway A 6 Almere, Rikswaterstaat - Tender for Design, Build, Maintain and Finance Contract (DBFM) for the reconstruction of the motorway A6 Almere prepared and executed under the leadership of Rijkswaterstaat. New tendering method that aims to reduce CO2 emissions was applied and tendering parties were incentivized to offer a lean design and to apply innovative materials and working methods.
Construction of the Sea Entrance Ijmuiden - Tender for Design, Build, Maintain and Finance Contract (DBFM) of a new lock at the sea side of the Noordzeekanaal (North Sea Channel) in the harbour of Ijmuiden to give large ocean-going vessels access to the port of Amsterdam prepared and executed under the leadership of Rijkswaterstaat. New tendering method that aims to reduce CO2 emissions was applied and tendering parties were incentivized to offer a lean design and to apply innovative materials and working methods.
Guard lock in the river Meuse in the municipality of Limmel - Tender for design, build, maintain and finance (DBFM) prepared and executed under the leadership of Rijkswaterstaat. Contract includes the reconstruction of the guard lock and management and maintenance of the new lock, dyke structures, culvert and fixed bridge for a period of 30 years. New tendering method that aims to reduce CO2 emissions was applied and tendering parties were stimulated to offer a lean design and to apply innovative materials and working methods.
Further Guidance related to Climate-Smart Procurement
Sustainable Procurement Platform, managed by ICLEI (Local Governments for Sustainability) - Provides up to date news, case studies, events, tools and guidance as well as links to relevant EU laws and policies and more on sustainable procurement from across the world.
GPP 2020: Procurement for a low-carbon economy – GPP aims to mainstream low-carbon procurement across Europe in support of the EU’s goals to achieve a 20 % reduction in greenhouse gas emissions, a 20 % increase in the share of RE and a 20 % increase in energy efficiency by 2020.
Low-Carbon Innovation for Sustainable Infrastructure: The Role of Public Procurement, International Institute for Sustainable Development (IISD) and Industrial Innovation for Competitiveness 2018.
Climate Resilience Design Guidelines (CRG), New York Port Authority (updated June 2018) – The guidelines recommend to integrate the CRG criteria early into the project delivery process and in project documents, including in (i) the project proposal; (ii) the attachment for consultant services; (iii) design criteria/performance criteria/basis of design documents; as well as (iv) the requirements and provisions for work.
Public procurement for innovation: Good practices and strategies, OECD 2017 - The report takes stock of the strategic use of procurement for innovation in OECD Member countries and non-Member economies. It provides evidence that public procurement is a major pillar of strategic governance and service delivery. Such innovations are helping reduce energy consumption and support the transition to a low-carbon world.
Adapting to Climate change: the role of public procurement, Greater London Authority (GLA) September 2009 - The study looks specifically at the role of public procurement with regard to climate change adaptation. It considers specifically (i) the process of embedding climate change adaptation into procurement; and (ii) the associated legal case and the economic costs and benefits. It includes case studies that describe how climate change adaptation was embedded in the procurement process, what adaptation features where incorporated in the project and the related cost, benefits and risks.
Climate-Smart PPP Contracts
There are various ways to deal with risk related to climate change and potential for carbon reduction in PPP contracts. The following are some examples:
- Design specifications that reduce greenhouse gas emissions and minimize vulnerability to climate change;
- Clauses that allocate risks associated with unpredictable changes and increased costs caused by or connected with climate change (e.g. force majeure clauses, change in law clauses);
- KPIs that contain appropriate indicators, reporting obligations and inspection rights regarding climate-change mitigation and adaptation obligations;
- Contractual payment mechanisms that connect (non-)compliance with climate change mitigation and adaptation obligations with bonuses, penalties and/or payment deductions during construction and operation and maintenance (O&M) phases).
For an overview of how to manage climate change risks in performance- and output-based contracts see Incorporating Climate Risk in PBC Contracting Recommendations, Task 5 Report, Final Draft, World Bank Group 2018
For an overview of how climate change considerations can be integrated into PPP contracts see also Guidance on PPP Contractual Provisions, World Bank Group 2019, PPP Contracts in Context at subsection M (Climate Change).
The design features in the PPP contract can specify what kind of design will be fit to reduce greenhouse gas emissions or to respond to the anticipated occurrence of more severe and more frequent adverse weather conditions:
PPP Desalination Project - Project deed and ancillary documents with summaries for the design, construction and operation of a seawater desalination plant, 85 km transfer pipeline, delivery of power supply for the project, operations and maintenance, and the purchase of renewable energy credits. A key feature of the project is that all power usage during the operating phase of the project will be fully offset by power generated by renewable energy sources.
The TransMilenio Bus Rapid Transit (BRT) system opened to the public in December 2000 and replaced a system of many small competing enterprises. It is considered as a model case for a mass urban transit system and was replicated by various cities. The TransMilenio operates like a rail-based system by providing dedicated lanes for the exclusive use of the system’s buses, with boarding stations along the length of the lanes. It is a registered Clean Development Mechanism (CDM) project under the UN Framework Convention on Climate Change (UNFCCC). GHG emission reductions were, for example, achieved by a renewal of the bus fleet, increased capacity of the buses, improved operating conditions (e.g. bus-priority traffic signals), centralized bus-fleet control, and the introduction of pre-payment technology that which streamlined board process). Sample contracts relating to Phase I of the TransMilenio system:
- Draft Concession Agreement for Public Private Partnership in Operation and Maintenance of Electric Buses in cities (OPEX Model) between the Kerala Road Fund and the Thiruvananthapuram Road Development Company Limited - The model document has been developed by the National Institute of Transforming India (“NITI”) Aayog, Government of India based on international best practices, and with view of providing cleaner, more efficient and affordable public transportation. Authority awards operator the right to procure, supply, operate and maintain the buses and to construct, operate and maintain the maintenance for a period of  years.
Draft Model Concession Agreement for Eco-Tourism Resort and Supporting Infrastructure – Draft document of 7 January 2019 developed by the National Institute of Transforming India (“NITI”) Aayog, Government of India. Model contract contains various components related to climate change. The project infrastructure includes e.g., the construction and operation of a power facility as a renewable energy power project of at least 25000 kWh capacity. The development of the Resort shall conform with the specifications and standards as specified in the agreement, including green building standards.
Resilient Infrastructure Public-Private Partnerships (PPPs): Contracts and Procurement – The Case of Japan, World Bank 2017 - Country report provides the wording of a contract clause related to the design requirements for safety and structural planning, as well as the establishment of an emergency system and required responses to emergency that were drafted for the Sendai Meal Supply Center (Box 4.2).
- Norway, Oslo - The Veitvet School project is being built as a PPP and consists of a new elementary and middle school for grades 1 to 10, including a multi-use hall. The private partner (Skanska) will develop, construct and maintain the school for 25 years, and has signed a contract with the Oslo municipality for leasing the school over the same period, with a possible extension. The Veivet School project follows a low carbon strategy and seeks to achieve a minimum of 50 percent reduction in greenhouse gas emissions compared to a conventional building of today´s standards. The location of Veitvet School is favourable with respect to low greenhouse gas emissions from transport (proximity to public transport). Other low carbon features are limited parking places and reserved parking for electric cars with charging points, good facilities for the use of bicycles, and a careful selection of robust materials based on associated greenhouse gas emissions.
- United States, Texas - Facility Concession Agreement between Texas Department of Transportation and the SH 130 Concession Company related to a state-owned toll road being developed under a PPP (SH 130). Construction needs to meet the requirements set forth in the Technical Requirements (7.2.1. Facility Concession Agreement). 12.3 (no. 6) of the Technical Requirements specifies, for example, the Drainage Design Criteria as follows: “all drainage structures, storm systems and outfalls shall be evaluated for the 100-year storm event”.
Natural disasters that cannot be controlled or reasonably prevented by a private operator are key risk factors in a PPP project. They have traditionally been treated as force majeure (acts of God) events with the consequence that both parties share the risk. This concept may not work in the context of climate change anymore where natural disasters have become more frequent and may become probable events during the term of the contract.
Therefore, defining force majeure and contractually allocating the disaster risks between the public and private entities in a way that it is commercially acceptable for private operators and investors are essential for structuring resilient infrastructure projects.
Here are a few examples of different force majeure provisions:
- Resilient Infrastructure Public-Private Partnerships (PPPs): Contracts and Procurement – The Case of Japan - Table 6.1 presents sample provisions that can be included in contracts that take account of climate change risk.
- Guidance on PPP Contractual Provisions, World Bank Group 2019 contains sample provisions for force majeure at paragraphs 1.4 and 1.5.
- Emerging Trends in Mainstreaming Climate Resilience in Large Scale, Multi-sector Infrastructure PPPs, PPIAF 2016
- Force Majeure – Checklist and Sample Wording
The following solutions are discussed in literature:
- According to the Guidance on PPP Contractual Provisions, World Bank Group 2019, 1.4 Sample Drafting and commentary in 22.214.171.124 “(…) the impact of climate change and the treatment of climate risk events is coming under increasing scrutiny in PPP Projects. (…) [With regard to climate change] the parties may (for example) want to specify certain types of extreme weather conditions or changes in habitat which qualify as Force Majeure events in order to address climate change risks as they relate to their specific project (for example, sea levels rising beyond a certain level where this would adversely affect a project located on the coast). This approach recognizes that, while the impacts of climate change may have become increasingly foreseeable, it is unlikely to be in the affected Party’s power to prevent, avoid or overcome certain events on its own. (…) the Parties should carefully assess whether the legal system in the country, in which their PPP Project is located, allows for inclusion of such events under Force Majeure.” See also the section entitled PPP Contracts in Context at subsection M (Climate Change).
- Force Majeure and Climate Change What is the New Normal? Jocelyn L. Knoll and Shannon L. Bjorklund*, Journal of the American College of Construction Lawyers, 2014'. This Article focuses on construction contracts in the United States and describes how parties and courts approach force majeure questions in various contexts, including how both currently distinguish expected but severe weather (not generally a force majeure event) from unexpectedly or unusually severe weather (potentially a force majeure event). It then examines how these methods will need to evolve in light of changing weather patterns.
Another question regards the risk allocation in the event of a change of legislative requirements to address the impact of climate change, e.g. the requirements under a Building Code are changed or a carbon price is introduced.
There are several approaches to allocate change in law risk (for details see chapter 3 of the Guidance on PPP Contractual Provisions, World Bank Group 2019). In general, the private partner may be able to claim relief if the change in law to respond to climate change was not yet foreseeable when the pricing decision was made, e.g. when the bid was submitted (or when the contract was signed).
To incentivize projects that respond to the challenges of climate change appropriately, key performance indicators relating to climate change obligations (e.g. emissions, energy consumption or adaptation measures) can be built into PPP contracts together with contractual payment mechanisms that connect compliance with these obligations with bonuses, penalties and/or payment deductions.
- For an overview of how to manage climate change risks in performance- and output-based contracts see Incorporating Climate Risk in PBC Contracting Recommendations, Task 5 Report, Final Draft, World Bank Group 2018 - Provides an overview of how to manage climate change risks in performance- and output-based contracts. Table 5 contains standard KPIs impacted by climate change.
- According to Resilient Infrastructure Public-Private Partnerships (PPPs): Contracts and Procurement – The Case of Japan appropriate monitoring and payment deductions in case of non-compliance can also incentivize the private operators to meet the specifications set out in the proposals and performance standards.
Climate Change Risk & Insurance
Mandatory insurance requirements in PPP legislation or contracts may cover risk related to climate change to some extent. With more frequent occurrence of climate change events it may, however, become increasingly hard or costly to obtain insurance for certain disaster events caused by climate change in specific regions. On the other hand, some insurers could be willing to offer lower insurance premiums for companies that undertake actions that reduce climate risks.
According to the Guidance on PPP Contractual Provisions, World Bank Group 2019, 126.96.36.199 "(…) Some events (or degrees of event) may be insurable and, (…) it may be appropriate for the Contracting Authority to require the Private Partner to insure against these risks and/or to exclude them from the full scope of the Force Majeure provisions (or to set certain thresholds before they qualify as Force Majeure events). The Contracting Authority should bear in mind that the occurrence of certain climate risk events over the life of the PPP Contract may affect insurance premiums and availability (and in some insurance markets may not have capacity to cover such risks in the first place). This insurance risk should form part of any assessment as to how to treat climate risks in the PPP Contract. (…)".
Resilient Infrastructure Public-private Partnerships (PPPs): Contract and Procurement – The Case of India, World Bank, 2018 gives an overview on the availability of insurance for PPP projects in the context of climate change in India.
Resilient Infrastructure Public-Private Partnerships (PPPs): Contracts and Procurement – The Case of Japan, World Bank 2017 - Chapter 5, “Insurance and Financial Institutions,” reviews the roles and benefits of insurance in infrastructure PPPs.