Abstract

To encourage a step change in private finance for low-carbon investment, we examine the potential of taxing institutional investment funds (investment emissions intensity taxation, IEIT) if the emissions intensity of their portfolios exceeds specified thresholds. We examine how IEIT would impacts assets’ relative expected rates of return, using a hypothetical diversified portfolio comprising the constituents of a leading market index. IEIT exerts a price influence on the flow of corporate capital expenditures financed either by capital-raising or by corporate retained earnings, encouraging both standalone low-carbon projects and more energy-efficient replacement of process-embedded fixed assets. IEIT must be a forward-looking tax with a pre-specified profile of reducing emissions intensity threshold levels to avoid potential offshoring of investment due to its significant impact on the cost of capital for high emissions intensity companies. IEIT challenges regulated investors to match their net zero declarations with actions, and acts as a policy backstop if emissions trading prices and coverage remain too low, or in case climate risk disclosure and investment taxonomy policies alone do not shift investment behaviours sufficiently.

Keywords:

• investors taxation
• emissions intensity
• low-carbon finance

Abstract

Rapidly mobilising finance from a wide variety of sources is crucial for scaling up wind deployment and enabling the clean energy transition. To do so will require an understanding how investors co-invest in wind project finance markets and how internal market dynamics align with rapid growth in deployment. Our analysis of the largest, mature wind markets globally shows that internal market dynamics matter for the pace of growth. We observe a common pathway to fast growth whereby a small set of experienced debt providers, predominantly commercial banks, support a major fraction of all lending activity. These critical investors ascend to prominent positions in the market through a positive feedback process whereby more experienced lenders are more likely to attract new equity partners and this ‘financial learning’ spurs virtuous cycles of investment. Our results suggest strategic action to boost project finance investments entails leveraging positive feedback dynamics and supporting systemically important lenders.

Keywords:

• wind assets
• networks
• climate finance

Abstract

Clean and affordable energy is crucial to achieve a sustainable future. Despite being controversial, hydropower remains the predominant low-cost and reliable source of energy at global level, as it stabilizes the provision of electricity and it bears the power peaks without losing efficiency. However, hydropower requires huge upfront investments and patient functional capital. Under the Paris Agreement, countries committed to direct financial capital flows towards a low-emission pathway in order to enable the transition. Furthermore, private capital strongly engaged with a transition towards a climate-smart economy. The aim of this work is to study the investment system behind hydropower, investors’ behaviour and the optimal allocation of finance to favour the deployment of capital flows. We use Bloomberg Energy Finance database to track public–private investments over the past century (1903–2020). We use network models to represent the hydropower project financing landscape as a network of co-investments. We find that investors are highly localized, with continental players mostly interacting with counterparts in the same area of the world. Powerful exceptions are international organisations and multilateral banks which coinvest across the globe. They also tend to support low-income and fragile countries, meeting their mandate of sustainable development champions. Multilateral banks and international organisations are the most critical actors in enabling public–private co-investments; they activate partnerships with a wider diversity of investors within the network creating more opportunities for blended finance tools. Our results offer a novel perspective on finance for the energy transition: it challenges the idea that more capital invested is better and calls for a more efficient allocation of the available resources.

Keywords:

• hydro investment
• public–private partnerships
• climate finance

Abstract

The financial sector’s response to pressures around climate change has emphasized the role of disclosure, notably through the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. This Perspective examines two dimensions of the expectations behind transparency and disclosure initiatives: the belief that disinvestment is driven by disclosure; and that investment ‘switches’ from high- to low-carbon assets. We warn about the risk of disappointment from inflated expectations about what transparency can really deliver and suggest some areas that research and public policy should examine to mobilize the required capital to meet climate goals.

• climate disclosure
• low-carbon investment
• climate finance

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.

• WACC
• low-carbon investment
• climate investment trap
• developing economies
• climate finance

Abstract

The finance sector’s response to pressures around climate change has emphasized disclosure, notably through the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). The implicit assumption—that if risks are fully revealed, finance will respond rationally and in ways aligned with the public interest—is rooted in the “efficient market hypothesis” (EMH) applied to the finance sector and its perception of climate policy. For low carbon investment, particular hopes have been placed on the role of institutional investors, given the apparent matching of their assets and liabilities with the long timescales of climate change. We both explain theoretical frameworks (grounded in the “three domains”, namely satisficing, optimizing, and transforming) and use empirical evidence (from a survey of institutional investors), to show that the EMH is unsupported by either theory or evidence: it follows that transparency alone will be an inadequate response. To some extent, transparency can address behavioural biases (first domain characteristics), and improving pricing and market efficiency (second domain); however, the strategic (third domain) limitations of EMH are more serious. We argue that whilst transparency can help, on its own it is a very long way from an adequate response to the challenges of ‘aligning institutional climate finance’.

• institutional investors
• low-carbon investment
• disclosure
• efficient markets hypothesis
• climate finance

• energy efficiency gap
• market failures
• behavioural failures

• technology adoption
• energy efficiency
• consumer behavior
• discrete choice

• grid parity
• levelized cost of energy (LCOE)
• financing schemes
• solar photovoltaics

Abstract

Abstract

This paper demonstrates how achieving optimal integration between design and energy resources management can be particularly attractive in terms of energy consumption saving (cooling and heating) and lowering greenhouse gas emissions. The building automation system is based on innovative middleware framework which simplifies the modeling of a software for intelligent management of buildings and allows a multistandard and multiprotocol integration of sensors and actuators. The project has the target of underlining the economical opportunities and perspectives concerning the smart system adoption. Estimating the effects of home automation is essential to help its implementation, especially now that energy cost represents a consistent part of the house/building consumptions and will increase in the next few years. The results of the framework application in a residential building proves the validity of the proposed solution.

Keywords:

• building automation
• smart system