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Special Economic Zones
support; and so on. Also, many countries operate incentives to encourage investment in green industry, such as renewable energy and energy efficiency. Therefore, to promote low-carbon investment and actions in SEZs, incorporating diverse incentives developed for different purposes into a coherent low-carbon, green SEZ incentive scheme is a key issue. When foreign investors bring in high-tech green capital equipment, intermediary parts, or materials, customs tariff and tax could be exempted. Indonesia introduced green initiatives in April 2010, stating that it would reduce the net tax base by 5 percent annually for the next six years on the total investment in renewable energy. Foreign investors will receive a lower tax rate on all dividend payments. Companies involved in construction will not be charged value added tax or import duty on machinery and equipment used for such projects. For renewable energy and energy efficiency for which it is hard to make the business case in the absence of government incentives, feed-in tariffs for renewable energy investment and tax credits for energy-efficiency investments are critical. Feed-in tariff laws require mandatory purchases of renewable energy at a fixed price, such as those in Germany, Kenya, Spain, and South Africa, producing the highest market penetration rates in a short period. Investors consider these laws to be the most desirable and conducive to creating local industries because of their price certainty and administrative simplicity. Several financial incentives to consider include reducing upfront capital costs through subsidies; reducing capital and operating costs through investment or production tax credits; improving revenue streams with carbon credits; and providing financial support through concessional loans and guarantees. Prioritizing R&D funds for projects in a low-carbon, green SEZ, or mass procurement of energy-efficient green products, could provide substantial incentives. In Uganda and Vietnam, the bulk procurement of 1 million compact fluorescent lamps in each country substantially reduced the cost of the lamps and improved product quality through technical specifications and warranty; once installed, they cut peak demand by 30 megawatts.
Institutional Framework An institutional champion, such as a dedicated agency in charge of climate change policy, is essential to coordinate multiple stakeholders and promote and manage relevant policy issues. In a low-carbon, green SEZ, a dedicated department in charge of low-carbon initiatives needs to be established inside the SEZ authority. Because low-carbon initiatives are multidisciplinary, involving energy, environment, buildings, transportation,