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

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    Higher cost of finance exacerbates a climate investment trap in developing economiesCrossref
    Developing economies impacted from the vital green transition
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        Rated 3 of 5.
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        Rated 3 of 5.
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    Higher cost of finance exacerbates a climate investment trap in developing economies

    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. Access to low cost finance is vital for developing economies’ transition to green energy. Here the authors show how modelled decarbonization pathways for developing economies are disproportionately impacted by different weighted average cost of capital (WACC) assumptions.
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      The study shows how different assumptions about the weighted average cost of capital can disproportionately impact decarbonization pathways for developing economies. The article also suggests policy interventions that could lower WACC values for low-carbon and high-carbon technologies, potentially allowing Africa to reach net-zero emissions 10 years earlier. The article raises important concerns about the current finance frameworks and the need for radical changes to ensure equitable distribution of capital. Overall, the article presents a well-researched and informative study that makes an important contribution to the ongoing debate on climate change and sustainable finance.

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