Reducing the cost of capital to finance the energy transition in developing countries

M. Calcaterra*, L. Aleluia Reis, P. Fragkos, T. Briera, H. S. de Boer, F. Egli, J. Emmerling, G. Iyer, S. Mittal, F. H.J. Polzin, M. W.J.L. Sanders, T. S. Schmidt, A. Serebriakova, B. Steffen, D. J. van de Ven, D. P. van Vuuren, P. Waidelich, M. Tavoni

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

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.

Original languageEnglish
Pages (from-to)1241-1251
Number of pages11
JournalNature Energy
Volume9
Issue number10
Early online date27 Sept 2024
DOIs
Publication statusPublished - Oct 2024

Keywords

  • Climate change mitigation
  • energy access
  • finance
  • renewable energy

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