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Improved representation of investment decisions in assessments of CO2 mitigation

Nature Climate Change volume 5, pages 436440 (2015) | Download Citation

Abstract

Assessments of emissions mitigation patterns have largely ignored the huge variation in real-world factors—in particular, institutions—that affect where, how and at what costs firms deploy capital1,2,3,4,5. We investigate one such factor—how national institutions affect investment risks and thus the cost of financing6,7,8. We use an integrated assessment model (IAM; ref. 9) to represent the variation in investment risks across technologies and regions in the electricity generation sector—a pivotally important sector in most assessments of climate change mitigation10—and compute the impact on the magnitude and distribution of mitigation costs. This modified representation of investment risks has two major effects. First, achieving an emissions mitigation goal is more expensive than it would be in a world with uniform investment risks. Second, industrialized countries mitigate more, and developing countries mitigate less. Here, we introduce a new front in the research on how real-world factors influence climate mitigation. We also suggest that institutional reforms aimed at lowering investment risks could be an important element of cost-effective climate mitigation strategies.

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Acknowledgements

Research support for G.C.I., L.E.C., J.A.E. and H.C.M. was provided by the Global Technology Strategy Program. N.E.H. was supported by the National Science Foundation under grant number 1056998. D.G.V. was supported by the Electric Power Research Institute, BP Plc and the Norwegian Research Foundation. This research used Evergreen computing resources at the Pacific Northwest National Laboratory’s (PNNL) Joint Global Change Research Institute at the University of Maryland in College Park. PNNL is operated for DOE by Battelle Memorial Institute under contract DE-AC05-76RL01830. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any agency of the United States.

Author information

Author notes

    • Nathan E. Hultman

    N.E.H. is currently on temporary assignment at the White House Council on Environmental Quality.

Affiliations

  1. University of Maryland, School of Public Policy, 2101 Van Munching Hall, College Park, Maryland 20742, USA

    • Gokul C. Iyer
    •  & Nathan E. Hultman
  2. Pacific Northwest National Laboratory, Joint Global Change Research Institute, 5825 University Research Court, Suite 3500, College Park, Maryland 20740, USA

    • Gokul C. Iyer
    • , Leon E. Clarke
    • , James A. Edmonds
    •  & Haewon C. McJeon
  3. Resources for the Future, 1616 P St NW, Washington DC 20036, USA

    • Brian P. Flannery
  4. UC San Diego, School of International Relations and Pacific Studies, 9500 Gilman Drive #0519, La Jolla, California 92093-0519, USA

    • David G. Victor

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Contributions

All authors jointly designed the experiments and analysed the results. G.C.I. conducted the experiments and wrote the first draft of the paper. All authors contributed to writing the paper.

Competing interests

The authors declare no competing financial interests.

Corresponding author

Correspondence to Gokul C. Iyer.

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DOI

https://doi.org/10.1038/nclimate2553

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