Reducing the cost of capital to finance the energy transition in developing countries
Climate stabilization requires the mobilization of substantial investments in low- and zero-carbon technologies, especially in emerging and developing economies. However, access to stable and affordable finance varies dramatically across countries. Models used to evaluate the energy transition do not differentiate regional financing costs and therefore cannot study risk-sharing mechanisms for renewable electricity generation. In this study, we incorporated the empirically estimated cost of capital differentiated by country and technology into an ensemble of five climate-energy-economy models. We quantified the additional financing cost of decarbonization borne by developing regions and explored policies of risk premium convergence across countries. We found that alleviating financial constraints benefits both climate and equity as a result of more renewable and affordable energy in the developing world. This highlights the importance of fair finance for energy availability, affordability and sustainability, as well as the need to include financial considerations in model-based assessments.
Authors
- Mark Sanders (ORCID: https://orcid.org/0000-0003-4901-3921)
- Panagiotis Fragkos (ORCID: https://orcid.org/0000-0003-3596-0661)
- Friedemann Polzin (ORCID: https://orcid.org/0000-0002-9768-8694)
- Paul Waidelich (ORCID: https://orcid.org/0000-0002-5081-776X)
- Dirk-Jan Van de Ven (ORCID: https://orcid.org/0000-0001-9120-564X)
- Bjarne Steffen (ORCID: https://orcid.org/0000-0003-2219-1402)
- Lara Aleluia Reis (ORCID: https://orcid.org/0000-0002-6676-7007)
- Alexandra Serebriakova
- Gokul Iyer (ORCID: https://orcid.org/0000-0002-3565-7526)
- Harmen Sytze de Boer (ORCID: https://orcid.org/0000-0001-7376-2581)
- Massimo Tavoni (ORCID: https://orcid.org/0000-0001-5069-4707)
- Shivika Mittal (ORCID: https://orcid.org/0000-0003-4718-0064)
- Tobias S. Schmidt (ORCID: https://orcid.org/0000-0002-7971-2187)
- Johannes Emmerling (ORCID: https://orcid.org/0000-0003-0916-9913)
- Detlef Peter van Vuuren (ORCID: https://orcid.org/0000-0003-0398-2831)
- Matteo Calcaterra (ORCID: https://orcid.org/0000-0001-9465-2082)
- Thibault Briera (ORCID: https://orcid.org/0000-0002-9143-9291)
- Florian Egli (ORCID: https://orcid.org/0000-0001-8617-5175)
Institutions
- Joint Global Change Research Institute (US)
- Netherlands Environmental Assessment Agency (NL)
- University of Applied Sciences Utrecht (NL)
- Utrecht University (NL)
- AgroParisTech (FR)
- Maastricht University (NL)
- ETH Zurich (CH)
- Basque Centre for Climate Change (ES)
- RFF-CMCC European Institute on Economics and the Environment (IT)
- CIRED (FR)
- CICERO Center for International Climate Research (NO)
- CMCC Foundation - Euro-Mediterranean Center on Climate Change (IT)
- Imperial College London (GB)
- Technical University of Munich (DE)
- University of Maryland, College Park (US)
- Politecnico di Milano (IT)
Publication Details
- Journal
- Nature Energy
- Published
- 2024-09-27
- DOI
- https://doi.org/10.1038/s41560-024-01606-7
- Citations
- 66
- Primary Topic
- Climate Change Policy and Economics
- Type
- article
- Field-Weighted Citation Impact
- 74.53
Funders
- European Commission
- HORIZON EUROPE Framework Programme
- Staatssekretariat für Bildung, Forschung und Innovation