Innovative climate finance mechanisms are trying to lure private-sector investment into the developing world

One of the biggest barriers to achieving the Paris Agreement’s ambition to limit climate change to 2C, and ideally 1.5C, is how renewable energy projects will be funded in developing countries.

The International Energy Agency estimated in 2015 that between 2015 and 2030 $2.7tr, or $180bn annually, would need to be invested in energy efficiency and low-carbon technologies in non-OECD countries to meet their individual goals for climate action, known as nationally determined contributions (NDCs). This estimate was made ahead of the climate conference, before all countries had made their climate pledges. Yet tracked renewable energy finance in developing countries in 2014 amounted to only about $135bn annually, according to Climate Policy Initiative.

Dario Abramskiehn, a climate finance analyst at CPI, points out: “Even interpreting developing countries’ NDC clean energy investment needs very conservatively at US$180 billion per year, it is clear that there is a significant shortfall between NDC needs and current tracked clean energy financing in developing countries.”

He says there are a number of barriers to increasing climate finance. Lack of availability of appropriate financing for renewables projects may be among the most prominent factors. However, this may result from larger challenges. These...

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