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

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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.

          Abstract

          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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          Most cited references54

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          The theory and practice of corporate finance: evidence from the field

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            Scenarios towards limiting global mean temperature increase below 1.5 °C

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              Energy investment needs for fulfilling the Paris Agreement and achieving the Sustainable Development Goals

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                Author and article information

                Contributors
                n.ameli@ucl.ac.uk
                Journal
                Nat Commun
                Nat Commun
                Nature Communications
                Nature Publishing Group UK (London )
                2041-1723
                30 June 2021
                30 June 2021
                2021
                : 12
                : 4046
                Affiliations
                [1 ]GRID grid.83440.3b, ISNI 0000000121901201, Institute for Sustainable Resources, , University College London, ; London, UK
                [2 ]GRID grid.83440.3b, ISNI 0000000121901201, UCL Energy Institute, , University College London, ; London, UK
                [3 ]GRID grid.479908.b, ISNI 0000 0004 0561 5004, Chair Energy and Prosperity, Risk Foundation Institut Louis Bachelier, ; Paris, France
                Author information
                http://orcid.org/0000-0002-6728-9190
                http://orcid.org/0000-0002-4299-3376
                http://orcid.org/0000-0002-2888-400X
                http://orcid.org/0000-0001-9684-2701
                http://orcid.org/0000-0001-8424-8473
                http://orcid.org/0000-0002-7455-2540
                http://orcid.org/0000-0003-2393-3041
                Article
                24305
                10.1038/s41467-021-24305-3
                8245630
                34193868
                fa62fd9f-58cf-4637-98dd-c4616f92927d
                © The Author(s) 2021

                Open Access 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. The images or other third party material in this article are included in the article’s Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/.

                History
                : 14 January 2021
                : 7 June 2021
                Funding
                Funded by: FundRef https://doi.org/10.13039/100010661, EC | Horizon 2020 Framework Programme (EU Framework Programme for Research and Innovation H2020);
                Award ID: 642018
                Award ID: 730427
                Award ID: 730427
                Award ID: 730427
                Award ID: 730427
                Award ID: 642018
                Award ID: 730427
                Award ID: 730427
                Award ID: 642018
                Award ID: 730427
                Award ID: 730427
                Award ID: 730427
                Award ID: 642018
                Award Recipient :
                Funded by: FundRef https://doi.org/10.13039/501100000266, RCUK | Engineering and Physical Sciences Research Council (EPSRC);
                Award ID: EP/M507970/1
                Award Recipient :
                Categories
                Article
                Custom metadata
                © The Author(s) 2021

                Uncategorized
                climate-change policy,energy policy
                Uncategorized
                climate-change policy, energy policy

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