Government as Facilitator: Redefining Public-Private Partnerships in the Energy Transition (Part 1)

I. Introduction: Beyond Taxpayer Funding — A New Paradigm for Public-Private Collaboration

The global energy transition represents one of the most significant capital reallocations in human history. Achieving the climate objectives outlined in the Paris Agreement and subsequent national commitments requires an unprecedented mobilization of investment in clean energy, grid modernization, and energy efficiency. The scale of this financial undertaking far exceeds the fiscal capacity of public budgets, which are already strained by competing priorities and rising debt levels. The traditional model of government as a direct funder, primary risk-bearer, or market operator is no longer tenable; it has proven to be fiscally unsustainable, economically inefficient, and often socially inequitable.

This report argues for a fundamental paradigm shift in the role of the state within public-private partnerships (PPPs) for the energy transition. The government's most potent assets are not its financial resources but its sovereign powers: the ability to create stable and predictable policy, provide regulatory certainty, convene diverse stakeholders, and act as a trusted arbiter of data. By strategically leveraging these assets, governments can evolve from being capital providers to becoming strategic facilitators and market creators. In this new role, the state's primary function is to de-risk innovation and create an environment that unlocks the trillions of dollars in private capital required to meet climate targets, such as the Nationally Determined Contributions (NDCs).

This new paradigm is enabled by the maturation of decentralized technologies, particularly blockchain. Distributed ledger technology provides the technical architecture for a new generation of transparent, automated, and efficient energy markets. These systems allow governments to participate as overseers, regulators, and even beneficiaries, all without the necessity of direct capital expenditure or the assumption of commercial risk. By embracing this facilitator model, governments can move beyond the limitations of taxpayer-funded projects, accelerate the pace of the energy transition, and build a more resilient, equitable, and sustainable energy future.

II. The Trillion-Dollar Misallocation: Pathologies of the Traditional Model

The prevailing model of direct government intervention in energy markets, characterized by massive subsidies and capital-intensive public-private partnerships, is fundamentally flawed. A data-rich diagnosis reveals a system that is not only fiscally unsustainable but also economically distortive and socially regressive. This section will dissect the pathologies of this traditional approach, demonstrating why a new framework is not just advantageous, but imperative.

Energy Subsidies: The Scale of the Problem

Direct and indirect subsidies for fossil fuels represent one of the most significant misallocations of public capital globally. According to the International Energy Agency (IEA), global fossil fuel consumption subsidies reached a record high of over $1 trillion in 2022, a figure that more than doubled from 2021 levels as governments reacted to the global energy crisis.¹ While this number receded to $620 billion in 2023, it remains historically elevated and starkly contrasts with the mere $70 billion spent on consumer-facing clean energy investments during the same period.¹

The International Monetary Fund (IMF), employing a broader definition that includes undercharging for environmental costs (implicit subsidies), calculates the total figure for 2022 at a staggering $7 trillion, equivalent to 7.1% of global GDP.² This sum exceeds global annual government spending on education.⁴ These figures represent a profound opportunity cost. They are public funds that could be redirected toward critical social services or, more strategically, to creating the enabling environment for a privately-funded energy transition.³ The dramatic spike in 2022 underscores a systemic weakness in the current policy toolkit: during crises, the political default is to deploy blunt, expensive, and distortive instruments rather than relying on resilient market structures.

[Image 1: Global energy subsidy spending chart (fossil fuels vs. renewables)]

Note: Figures are compiled from IEA and OECD data. The 2022 increase percentages for oil, gas, and electricity are based on IEA analysis. The 2023 breakdown is not yet fully available but reflects a general decline from 2022 peaks.

The Deep Inequity of Subsidy Distribution

The primary political justification for energy subsidies—that they protect the poor and vulnerable from high energy costs—is decisively refuted by evidence. Universal price subsidies are a demonstrably regressive form of social policy. A comprehensive review covering 20 developing countries found that the top income quintile captures, in absolute terms, six times more in subsidy benefits than the bottom quintile.⁵ Reinforcing this, a World Bank study across 12 middle-income countries revealed that the richest 20% of households receive, on average, 11 times more in energy subsidies than the poorest 20%.⁹

This inequity is a direct function of consumption patterns; wealthier households consume more energy through larger homes, more appliances, and greater private vehicle use, and therefore capture a disproportionate share of the benefits from artificially lowered prices.¹⁰ This mechanism not only fails to protect the poor effectively but actively exacerbates inequality. It represents a transfer of public wealth to those who need it least, creating a powerful argument for reform based not just on fiscal prudence and climate goals, but on the principles of social justice.

Structural Flaws of Direct Investment and Traditional PPPs

To attract private capital for large-scale energy projects, governments have historically relied on traditional Public-Private Partnership (PPP) structures. In a typical energy PPP, a private consortium forms a Special Purpose Vehicle (SPV) to finance, build, and operate an asset, such as a power plant. The government's role is to provide a stable operating environment, often through long-term Power Purchase Agreements (PPAs) with a state-owned utility and various forms of guarantees.¹³ While these structures have enabled significant infrastructure development, they are burdened with inherent structural flaws.

• Fiscal Burden and Hidden Liabilities: A primary motivation for PPPs is to move large capital expenditures off the government's balance sheet. However, this is often an accounting illusion. To make projects "bankable," governments provide guarantees—covering risks from revenue shortfalls to political instability—that create massive, opaque contingent liabilities.¹⁴ These "off-balance-sheet" commitments obscure the true fiscal risk borne by future taxpayers, creating a veneer of fiscal responsibility while deferring potentially enormous costs.¹⁴
• Political Cycles and Sovereign Risk: Long-term infrastructure investments are highly vulnerable to the short-term nature of political cycles. Investors face significant sovereign risk, which includes the possibility of retroactive changes to key policies like Feed-in Tariffs (FiTs), as occurred in Spain, or politically motivated attempts to renegotiate legally binding PPAs, as seen in the Indian state of Andhra Pradesh.¹⁷ This policy instability either deters high-quality private investment altogether or forces governments to offer higher risk premiums and more generous guarantees, ultimately increasing the cost to the public.
• Inefficiency and Corruption: Large, centrally managed public contracts are fertile ground for inefficiency and corruption. The 2019 FirstEnergy scandal in Ohio serves as a stark case study. An FBI investigation revealed that the utility funneled over $60 million in bribes to entities controlled by the Ohio House Speaker in exchange for passing legislation that provided a $1.2 billion bailout for its struggling nuclear plants.¹⁹ This act of "hijacking" state electricity policy for private gain came at a direct cost to ratepayers. Similarly, the multi-billion-dollar Lesotho Highlands Water Project was marred by corruption, with multinational firms bribing the project's chief executive to secure tenders and subsequently colluding to evade environmental regulations, leading to severe ecological damage.²²

These pathologies are not isolated incidents but symptoms of a flawed model. The use of subsidies to keep energy prices artificially low distorts market signals, rendering the sector financially unviable for private investment without further state support.²³ To attract capital into this distorted market, governments are compelled to offer the very financial guarantees and rigid PPP structures that create immense fiscal risks and opportunities for corruption.¹³ This creates a vicious cycle of intervention, where each solution deepens the underlying problem. A sustainable path forward requires breaking this cycle by moving away from price manipulation and toward true market facilitation.

III. The Facilitator Framework: Evolved Government Roles in Blockchain-Based Energy Ecosystems

The transition from a direct funder to a strategic facilitator requires a re-imagining of the government's role in the energy sector. In a blockchain-enabled ecosystem, the state can leverage its unique sovereign powers to create a thriving, privately funded market for energy efficiency and distributed generation. This framework is built on five key non-financial roles that allow the government to guide, legitimize, and benefit from the market without controlling it or bearing its financial risks.

1. Policy Taker & Regulatory Enabler

The government's most fundamental and powerful role is to establish a clear, stable, and predictable legal and regulatory framework.²⁶ In the facilitator model, the state moves away from picking technological winners or funding specific projects. Instead, it meticulously defines the "rules of the game" that provide the private sector with the confidence required for long-term investment. This involves creating enabling legislation that gives legal recognition to digital assets, such as tokenized carbon credits or verified energy efficiency certificates. It also means establishing clear rules for peer-to-peer energy trading, defining data privacy and access rights for smart meter information, and setting technical standards for grid interaction.²⁸ This is a proactive role of market creation, not a passive one of policy acceptance.

2. Data Provider (via Secure Access)

Quantifying energy efficiency gains—the core commodity in this new market—requires trusted, verifiable data. The most reliable source for this baseline consumption data is often government-regulated utility infrastructure, specifically smart meters. The government, or its designated regulatory body, is uniquely positioned to act as a trusted custodian and gatekeeper for this sensitive information. In its facilitator role, the government does not release data openly but instead enables secure, permissioned, and anonymized access to authorized market participants. A blockchain-based platform can manage these permissions with cryptographic precision, creating an immutable and auditable trail of who accessed what data, for what purpose, and when, thereby ensuring transparency and accountability while protecting consumer privacy.²⁹

3. Network Participant (Validator without Centralization)

A primary concern with government involvement in decentralized systems is the risk of centralization. However, a government entity can lend credibility and provide oversight to a network without controlling it by operating a validator node within a permissioned or consortium blockchain architecture.³¹ In such a network, only a pre-approved set of entities can validate transactions and write new blocks to the ledger.³⁴

By acting as one of several validators—alongside private energy companies, technology providers, academic institutions, and consumer advocacy groups—the government adds sovereign legitimacy to the network's operations. Its presence ensures that regulatory compliance is not merely an external check but is hard-coded into the system's consensus mechanism. This model strikes a crucial balance: the government is a powerful and trusted participant, but it lacks the unilateral authority to alter the ledger, censor transactions, or seize control of the network. It provides oversight while preserving the decentralized integrity of the system.³⁶

4. Beneficiary (Revenue Generation without Capital Outlay)

This framework transforms the government's financial position from a cost center to a revenue center. By successfully facilitating a market for energy efficiency and distributed energy resources, the state can automatically and efficiently generate revenue from the economic activity it has enabled. Smart contracts—self-executing code on the blockchain—can be programmed to automatically remit a small, pre-defined transaction fee or tax to a designated government digital wallet for every peer-to-peer energy trade, every sale of a tokenized carbon credit, or every verified energy efficiency certificate transaction.³⁸ This creates multiple, diversified, and highly efficient micro-revenue streams that flow in real-time, without any upfront public investment and without the administrative friction and cost of traditional tax collection systems.

[Image 3: Government benefit streams infographic - multiple revenue sources]

This new model represents a fundamental shift in the relationship between the state and the market. In the traditional PPP model, the government's sovereign power is a source of risk for investors, who fear arbitrary policy changes or expropriation.¹⁷ To mitigate this, investors demand sovereign guarantees, which transfer financial risk back to the state.¹⁶ The facilitator model inverts this dynamic. Here, the government's sovereign power is repackaged as a series of indispensable services. It provides "Regulatory Certainty-as-a-Service" by creating the legal framework. It offers "Trust-as-a-Service" by acting as a validator node. It delivers "Data-as-a-Service" through secure, permissioned access to utility data. Instead of being forced to pay a risk premium to attract capital, the government earns a fee for providing the foundational services upon which the entire market is built. This reframes the government's role from a reluctant and risky counterparty to an essential and profitable service provider in a digital energy ecosystem.

References in part 2