The sustainability of green funds Bert Scholtens Abstract This paper analyses the performance of the Dutch “Green Funds Scheme”. This scheme is a policy instrument to advance green projects.The scheme relies on tax compensation for private investors who save or invest in green institutions below market returns.The green institutions select and monitor certified green projects and pass through part of the lower funding costs to investors. Certification of the green projects is based on environmental value-added and innovation.We provide a description of the characteristics of this incentive scheme and investigate the scheme’s performance. Keywords: Tax incentives; banks; sustainable development; green economy; performance. 1. Introduction The green economy in the context of poverty eradication and sustainable development is a central theme to be addressed by the United Nations Conference on Sustainable Development in Rio de Janeiro in 2012 (Rio+20). A key question here is whether the concept of the green economy is a useful way of policymaking to promote sustainable development. In general, the notion of sustainable development is thought to be more encompassing than that of the green economy (WCED, 1987). In fact, the former includes inter- and intragenerational issues regarding social, environmental and economic development, whereas the latter focuses on environmental and economic development. Thus, green economic policies do not account for social issues and leave aside intergenerational aspects of development. Therefore, to answer the question above, we investigate how a “green” policy instrument connects with sustainable development. We think this is appropriate, as policies tend to change over the course of time, whereas policy instruments stay more or less the same in the way they tend to work (OECD, 2010;Van den Bergh, 2011). In this respect, there basically are command and control policy instruments, subsidies and grants, and tax incentives (Anderson, 2010). We analyse the development and usage of a specific “green” policy instrument and investigate how it connects with sustainable development (see also Le Blanc, 2010). More specifically, we investigate a tax instrument that was developed in the Netherlands: the “Green Funds Scheme”. This scheme consists of a special method to fund projects that advance environmental performance. The tax scheme encourages households to put money into green projects that benefit nature and the environment. The individuals who invest or save money with green institutions receive a return which is usually below the market interest rate. The Dutch tax system partly compensates for this. Given this reduced cost of funding, the green institutions can charge green projects a below market interest rate. As a result, environmentally benign projects face lower funding costs. Since its inception, the “Green Funds Scheme” has facilitated more than 6,000 projects with almost €12 billion (US$ 17 billion). With the “Green Funds Scheme”, the government’s goal is for society to develop a clearer focus regarding environmental and energy issues when investment and consumption decisions are made. The scheme complements other policies that support environmentally friendly and energy-efficient investment, such as the energy investment allowance — the regulation that allows for free depreciation of environmentally benign investments — and the regulatory energy tax. With the introduction of the “Green Funds Scheme”, the government also hoped that the availability of private capital for green investment would promote the greater involvement of small private investors and banks. We provide an assessment of the “Green Funds Scheme’s” performance. Regarding environmental performance, we investigate emissions (foregone) of carbon dioxide, nitrogen oxide, ammonia and paradichlorobenzene. We also investigate the created area of nature and organic farming. Outreach to corporations, organizations and investors, that is, the number of projects undertaken and the number of participating households, is our indicator for social Bert Scholtens is at the University of Groningen, Department of Finance, the Netherlands. E-mail: l.j.r.scholtens@rug.nl Natural Resources Forum 35 (2011) 223–232 © 2011 The Author. Natural Resources Forum © 2011 United Nations