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Developing country finance in a post-2020 global climate agreement

Abstract

A central task for negotiators of the post-2020 global climate agreement is to construct a finance regime that supports low-carbon development in developing economies. As power sector investments between developing countries grow, the climate finance regime should incentivize the decarbonization of these major sources of finance by integrating them as a complement to the commitments of developed nations. The emergence of the Asian Infrastructure Investment Bank, South–South Cooperation Fund and other nascent institutions reveal the fissures that exist in rules and norms surrounding international finance in the power sector. Structuring the climate agreement in Paris to credit qualified finance from the developing world could have several advantages, including: (1) encouraging low-carbon cooperation between developing countries; (2) incentivizing emerging investors to prefer low-carbon investments; and (3) enabling more cost-effective attainment of national and global climate objectives. Failure to coordinate on standards now could hinder low-carbon development in the decades to come.

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Figure 1: Power capacity outside China, involving Chinese firms.

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Acknowledgements

P.M.H. was supported by the Chinese Ministry of Education through a Chinese Government Scholarship at Tongji University at the inception of work. S.J.D acknowledges support from the Institute of Applied Ecology, Chinese Academy of Sciences Fellowships for Young International Distinguished Scientists. The research is based on work supported by the Walbridge Fund in the Princeton Environment Institute, as well as the Carbon Mitigation Initiative, both at Princeton University, and research funding from the Ryoichi Sasakawa Young Leaders Fellowship Fund. The authors are grateful to R. Socolow, R. Keohane, S. Batterman, V. Jha, L. Rajamani and B. Rudyk for providing reactions.

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P.M.H. conceived the project in consultation with Z.L.; P.M.H. conducted the analyses and wrote the paper; M.O., S.J.D. and Z.L. provided substantial intellectual content in framing the argument and editing; Z.L. and M.O. jointly advised the work.

Corresponding authors

Correspondence to Phillip M. Hannam or Zhenliang Liao.

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M.O. is a consultant/science advisor to the Environmental Defense Fund.

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Hannam, P., Liao, Z., Davis, S. et al. Developing country finance in a post-2020 global climate agreement. Nature Clim Change 5, 983–987 (2015). https://doi.org/10.1038/nclimate2731

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