Global | Decarbonization? The key is the cost of capital

Estimates of the expenditure needed to decarbonize the economy reach trillions of euros but vary significantly depending on which items are included and under which assumptions.

Key points

• Key points:
• Changes in cost estimates are dependent on what is included in the calculations, such as investments in renewables, emission-free industrial processes, or the penetration of electric cars, and on the assumptions used (technological improvements, regulations, etc.).
• Economic profitability is key, and the cost of capital is the threshold that must be overcome to finance decarbonization projects, considering general macroeconomic risks such as institutional stability, and specific risks such as regulations to be defined.
• It is important to adapt financing strategies for cleantech innovation to the different stages of project development, with greater emphasis on public funding at the earliest stages.
• In the commercial deployment phase, private finance should predominate, supported by clear and predictable public policies that create certainty in expected returns.
• To leverage the necessary financing, decarbonization policies should focus on reducing the cost of capital, especially in emerging markets, where the risks are higher and therefore the minimum break-even threshold is also higher.

Authors

Geographies

Topics

Tags