Regional impacts on decarbonisation under evolving financing conditions for energy technologies

Abstract

Abstract Energy-sector decarbonisation requires large-scale investment in low-carbon technologies, yet only a limited share flows to low- and middle-income countries, partly due to higher financing costs and perceived risks. Most modelling exercises do not fully account for how the cost of capital may vary across regions and technologies, potentially influencing policy insights. We examine how plausible, expert-informed long-term trends in de-risking clean energy and increasing risks for fossil fuels could shape decarbonisation pathways, using an empirical dataset differentiated by country and technology. We also evaluate a “corrective justice” policy that taxes corporate windfall profits and redistributes revenues to support low-carbon investments in higher-risk regions. Results suggest that incorporating differentiated cost-of-capital trajectories may improve mitigation outcomes and help narrow the gap between current commitments and long-term climate targets, while indicating potential underestimation of risks associated with bioenergy-based negative emissions technologies in mitigation scenarios for high-income nations.