Abstract: Climate stabilisation requires mobilising significant 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. Here, we incorporate empirically estimated cost of capital differentiated by country and technology in an ensemble of five climate-energy-economy models. We quantify the additional financing cost of decarbonization borne by developing regions, and explore the implications of policies towards international convergence of country risk premia in energy investments. We find significant climate and equity benefits in alleviating financial constraints regarding increased renewable penetration and more affordable energy in the developing world. The exercise shows the importance of fair finance for energy availability, affordability, and sustainability, and the necessity to include financial considerations in model-based assessments.

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Speaker: Matteo Calcaterra, CMCC Foundation

Moderator: Stephanie Solf, The Netherlands Environmental Assessment Agency