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

M. Calcaterra (), L. Aleluia Reis, P. Fragkos, T. Briera, H. S. 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. Ven, D. P. Vuuren, P. Waidelich and M. Tavoni
Additional contact information
M. Calcaterra: Politecnico di Milano
L. Aleluia Reis: Euro-Mediterranean Center on Climate Change (CMCC)
P. Fragkos: E3Modelling
T. Briera: CIRED, AgroParisTech
H. S. Boer: PBL Netherlands Environmental Assessment Agency
F. Egli: Technical University of Munich
J. Emmerling: Euro-Mediterranean Center on Climate Change (CMCC)
G. Iyer: Pacific Northwest National Laboratory and University of Maryland
S. Mittal: Imperial College London
F. H. J. Polzin: Utrecht University School of Economics (USE)
M. W. J. L. Sanders: Maastricht University
T. S. Schmidt: ETH Zurich
A. Serebriakova: Maastricht University
B. Steffen: ETH Zurich
D. J. Ven: University of the Basque Country
D. P. Vuuren: PBL Netherlands Environmental Assessment Agency
P. Waidelich: ETH Zurich
M. Tavoni: Politecnico di Milano

Nature Energy, 2024, vol. 9, issue 10, 1241-1251

Abstract: 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.

Date: 2024
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DOI: 10.1038/s41560-024-01606-7

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