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Higher cost of finance exacerbates a climate investment trap in developing economies

Ameli, N; Dessens, O; Winning, M; Cronin, J; Chenet, H; Drummond, P; Calzadilla, A; ... Grubb, M; + view all (2021) Higher cost of finance exacerbates a climate investment trap in developing economies. Nature Communications , 12 (1) , Article 4046. 10.1038/s41467-021-24305-3. Green open access

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Abstract

Finance is vital for the green energy transition, but access to low cost finance is uneven as the cost of capital differs substantially between regions. This study shows how modelled decarbonisation pathways for developing economies are disproportionately impacted by different weighted average cost of capital (WACC) assumptions. For example, representing regionally-specific WACC values indicates 35% lower green electricity production in Africa for a cost-optimal 2 °C pathway than when regional considerations are ignored. Moreover, policy interventions lowering WACC values for low-carbon and high-carbon technologies by 2050 would allow Africa to reach net-zero emissions approximately 10 years earlier than when the cost of capital reduction is not considered. A climate investment trap arises for developing economies when climate-related investments remain chronically insufficient. Current finance frameworks present barriers to these finance flows and radical changes are needed so that capital is more equitably distributed.

Type: Article
Title: Higher cost of finance exacerbates a climate investment trap in developing economies
Location: England
Open access status: An open access version is available from UCL Discovery
DOI: 10.1038/s41467-021-24305-3
Publisher version: https://doi.org/10.1038/s41467-021-24305-3
Language: English
Additional information: This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Bartlett School Env, Energy and Resources
URI: https://discovery.ucl.ac.uk/id/eprint/10130854
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