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Decarbonizing the global energy system requires large-scale investment flows, with a central role for international climate finance to mobilize private funds. The willingness to provide international finance in accordance with common but differentiated responsibilities was acknowledged by the broad endorsement of the Paris Agreement, and the Green Climate Funds in particular. The international community aims to mobilize at least USD 100 billion per year for mitigation and adaption in developing countries. In this article, we argue that too little attention has been paid on the spending side of climate finance, both in the political as well as the academic debate. To this end, we review the challenges encountered in project-based approaches of allocating climate finance in the past. In contrast to project-based finance, we find many advantages to spending climate finance in support of price-based national policies. First, the support for international climate cooperation is improved when efforts of successively rising domestic carbon pricing levels are compensated. Second, carbon pricing sets incentives for least-cost mitigation. Third, investing domestic revenues from emission pricing schemes could advance a country's individual development goals and ensure the recipient's ‘ownership’ of climate policies. We conclude that by reconciling the global goal of cost-efficient mitigation with national policy priorities, climate finance for carbon pricing could become a central pillar of sustainable development and promote international cooperation to achieve the climate targets laid down in the Paris Agreement.
Under the United Nations Framework Convention on Climate Change, industrialized countries have agreed to cover the incremental costs of climate change mitigation in developing countries and recent climate negotiations have reaffirmed the central role of climate finance for global mitigation efforts. We use an integrated energy–economy–climate model to assess the potential magnitude of financial transfers to developing countries that can be expected under non-market transfer mechanisms as well as international emission trading with several allocation schemes. Our results indicate that for the latter, depending on international permit allocation rules financial transfers to developing countries could reach almost USD bln 400 per year in 2020, with Sub-Saharan Africa receiving financial inflows of as much as 14.5% of its GDP. Reviewing the literature on natural resource revenues, official development assistance and foreign direct investment, we identify three major channels through which such sizable financial inflows may induce harmful effects for recipients: volatility, Dutch disease, and rent-seeking and corruption. We discuss the relevance of these mechanisms for climate finance and identify institutional arrangements which could help to avoid a ‘climate finance curse’. We conclude that there is no deterministic relationship between financial inflows and adverse consequences, as the most serious problems could be prevented or at least alleviated by appropriately designed policies and governance provisions.
Low-carbon electricity generation, i.e. renewable energy, nuclear power and carbon capture and storage, is more capital intensive than electricity generation through carbon emitting fossil fuel power stations. High capital costs, expressed as high weighted average cost of capital (WACC), thus tend to encourage the use of fossil fuels. To achieve the same degree of decarbonization, countries with high capital costs therefore need to impose a higher price on carbon emissions than countries with low capital costs. This is particularly relevant for developing and emerging economies, where capital costs tend to be higher than in rich countries. In this paper we quantitatively evaluate how high capital costs impact the transformation of the energy system under climate policy, applying a numerical techno-economic model of the power system. We find that high capital costs can significantly reduce the effectiveness of carbon prices: if carbon emissions are priced at USD 50 per ton and the WACC is 3%, the cost-optimal electricity mix comprises 40% renewable energy. At the same carbon price and a WACC of 15%, the cost-optimal mix comprises almost no renewable energy. At 15% WACC, there is no significant emission mitigation with carbon pricing up to USD 50 per ton, but at 3% WACC and the same carbon price, emissions are reduced by almost half. These results have implications for climate policy; carbon pricing might need to be combined with policies to reduce capital costs of low-carbon options in order to decarbonize power systems.
Devising policies that facilitate a transition to low-carbon energy systems requires a close understanding of the country-specific political economy of energy and climate policy. We develop a generalized AOC (‘Actors, Objectives, Context’) political economy framework to inform and enable comparison of country-specific case studies of how economic structure, political institutions, and the political environment shape policy outcomes. Our actor-centered perspective is built on the assumption that those policies are implemented that best meet the objectives of actors with the greatest influence on policy decisions. Applying the framework in practice includes four basic steps: i) identifying the societal and political actors most relevant for the formulation, implementation and enforcement of energy and climate policies; ii) spelling out these actors’ underlying objectives; iii) assessing the economic, institutional, discursive and environmental context which determines how certain objectives matter for certain societal actors; and iv) analyzing the dynamic interactions among these factors leading to aggregate policy outcomes. Context factors determine how societal actors influence political actors engaged in formal public policy formulation, implementation and enforcement, and how the dynamic interplay of different political actors’ interests results in energy and climate policy outcomes. The framework can accommodate a wide range of theoretical perspectives. We illustrate how the framework enables conducting comparable energy and climate policy country case studies, using the example of coal use in India, Indonesia and Vietnam. Finally, we discuss how the framework can contribute to the identification of entry points that could bring about policy change.
Should economic growth continue in a world threatened by the prospect of catastrophic climate change? The scientific and public debate has brought forth a broad spectrum of views and narratives on this question, ranging from neoclassical economics to degrowth. We argue that different positions can be attributed to underlying differences in views on (a) factors that determine human well‐being, (b) the feasibility and desirability of economic growth, (c) appropriate intervention points, and (d) preferences about governance and policy options. For each of these dimensions, we propose points of agreement on which a consensus between conflicting positions might be achieved. From this basis, we distill a sustainability transition perspective that could act as a basis for a renewed debate on how to align human well‐being with environmental sustainability.
Introducing a price floor in emissions trading schemes (ETS) theoretically stabilizes expectations on future carbon prices and thus fosters low-carbon investment. Yet, ex post evidence on high carbon prices is scant and the relevance of carbon pricing for investment decisions is frequently contested. We provide empirical ex ante evidence on how a price floor in the EU ETS would impact the size and portfolio of energy firms’ investments. Analyzing survey responses of high-level managers in 113 German energy and industry companies, we find that the level of the price floor is crucial. A low price floor trajectory only provides insurance against downward price fluctuations and would leave investments largely unchanged except for industries receiving electricity price compensation, which reduce their investments. A high floor, significantly increasing the price level beyond current expectations, leads to higher investment by the majority of firms, especially by green firms, while investment in fossil energy would partially be abolished. Our studies implies that price floors can be important design components of ETS. However, policymakers need to ensure that they are at sufficiently high levels to affect investment decisions in a meaningful way.
Eine kohärente Klimaaußenpolitik (KAP) Deutschlands ist essentiell für das Gelingen sowohl der nationalen und europäischen Energiewende als auch für die effektive Unterstützung ambitionierter Klimapolitik außerhalb der Europäischen Union. Ziel dieses Ariadne-Hintergrundpapiers ist es, einen Diskussionsbeitrag zur Strukturierung der Debatte um die Eckpunkte und Optionen zur Ausarbeitung und Weiterentwicklung der deutschen KAP-Strategie zu leisten. Dazu werden vier Kategorien relevanter Ziele unterschieden. Diese reichen von klassischen klimapolitischen Zielen über industriepolitische sowie sicherheits- und handelspolitische Ziele hin zu breiteren außenpolitischen Zielen. Für jedes Ziel müssen entsprechende Mittel identifiziert werden, mit denen es erreicht werden kann, und Barrieren, die ihm im Weg stehen und entsprechend bedacht werden müssen. Für die Charakterisierung und Analyse verschiedener Mittel werden fünf Kategorien vorgeschlagen. Eine zentrale, aber in der Bewertung konzeptionell und empirisch herausfordernde Kategorie ist dabei das Transformationspotenzial einer Maßnahme.
Im Fall von Zielkonflikten und begrenzten Ressourcen müssen Ziele priorisiert werden. Wir skizzieren dafür einen analytischen Rahmen und diskutieren illustrativ mögliche Optionen zur strategischen Gesamtausrichtung. Diese umfassen zum einen KAP-Gesamtstrategien von Staaten gegenüber allen anderen Ländern, und zum anderen Strategien für spezifische Staaten (z.B. die deutsche Strategie für den Umgang mit Indien oder Südafrika). Dabei können Strategien in einem Kontinuum von maximaler Priorisierung von Klimazielen (Klimapolitik First) bis hin zur nachrangigen Behandlung (Klimapolitik als Mittel zum Zweck) verortet und entsprechend ausgestaltet werden.
Neben den Inhalten der Strategie werden Fragen der Organisation und Koordination in der Entwicklung und Implementierung der KAP-Strategie in den Blick genommen und die nächsten Schritte diskutiert. Eine erfolgreiche KAP-Strategie sollte dabei von Beginn an zwischen zentralen Stakeholdern im In- und Ausland in jeweils geeigneten Formaten erarbeitet, implementiert und im Sinne eines Lernprozesses fortlaufend angepasst werden. Eine KAP sollte sich in die breitere Außen- und Sicherheitspolitik Deutschlands einfügen, da relevante Politikfelder auf verschiedenen Ebenen eng miteinander verbunden sind. Bei der Erarbeitung der neuen KAP-Strategie der Bundesregierung sollte dazu insbesondere auf Kohärenz zur deutschen Sicherheits- und der Chinastrategie geachtet werden. Grundlage der Strategieentwicklung ist die Klärung möglicher Ziele und Mittel der deutschen KAP und ihrer Wechselwirkungen miteinander. Eine KAP-Strategie muss durch Analysen zu Umsetzbarkeit und Kosten, politischen Widerständen und Zielkonflikten informiert sein und die normativen Vorgaben der deutschen Außenpolitik berücksichtigen.