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It is widely recognized that finance is one of the critical enablers of accelerating climate action. However, renewable energy deployment (particularly in developing countries) requires more financing than fossil fuel-based alternatives due to a combination of factors, such as higher upfront investment costs.

This means that finance itself can become a barrier to mitigation investment, which is particularly problematic in the context of energy justice—making renewable energy more widely accessible in low-income countries and communities.

A new international research effort led by CMCC scientists tackles this issue by investigating how financial policies help ensure a just transition through a reduction in the cost of capital for energy technologies in the Global South.

The paper, published in Nature Energy, quantifies the importance of financing cost on the equity and efficiency of the energy transition, empirically estimating the cost of capital for a range of technologies in different countries and then including them in five coupled energy-climate-economy models. This reference scenario is then compared to a fair-finance policy in which risk premia around the world reach those of mature economies by 2050.

"In the fair-finance policy scenario, the quantity of renewable electricity generated in developing countries increases, leading to 30% of the renewable electricity needed in the Global South to keep global warming under 1.5°C and 10% of the fossil fuel reduction," says Matteo Clacaterra, lead author of the study.

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