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Fairer finance could speed up net zero for Africa by a decade

Fairer finance could speed up net zero for Africa by a decade

Levelling up access to finance so that poorer countries can afford the funds needed to switch to renewable energy could see regions like Africa reaching net zero emissions a decade earlier, according to a study led by UCL researchers

Levelling up access to finance so that poorer countries can afford the funds needed to switch to renewable energy could see regions like Africa reaching net zero emissions a decade earlier, according to a study led by UCL researchers.

Access to finance (credit) is vital for the green energy transition needed to reduce global greenhouse gas emissions, as laid out in the Paris Agreement. But access to low-cost finance is uneven, with the cost of securing capital to help reach net zero differing substantially between regions.

Modelling created for the study, Higher cost of finance exacerbates a climate investment trap in developing economies, published in Nature Communications, shows the road to decarbonisation for developing economies is disproportionately impacted by differences in the weighted average cost of capital (WACC). This is a financial ratio used to calculate how much a company or organisation pays to finance its operations, whether through debt, equity or both. The lower the value, the easier the company or government can access funds.

In the case of Africa, and a scenario where global warming this century is kept at 2°C, researchers calculated that current unfavourable WACC values will stunt the region's green electricity production by 35%.

The study is a collaboration between researchers from the UCL Institute of Sustainable Resources and the UCL Energy Institute, both of which sit with in UCL's Bartlett Faculty of the Built Environment. It makes the case for policy interventions to lower WACC values for low-carbon technologies by 2050.
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