Financing Decarbonization

DATE: 2022-01-01

Sachs, Jeffrey D. and Lisa E. Sachs

Red Vol 4, Issue 1 (Jan 2022): pp. 143-148.

Date Published: Jan 2022



Accelerating clean energy transitions around the globe is essential to avoid catastrophic global warming and to achieve universal access to clean and affordable energy. Financing clean energy transitions in emerging and… Decarbonization hinges on the rapid transformation to zero-carbon electricity, mainly through the deployment of wind, solar, hydroelectric, geothermal, and other non-carbon primary energy sources. This transformation depends substantially on the terms of finance for zero-carbon energy. If finance for decarbonization is ample and at low cost, decarbonization will proceed rapidly – not only because it is desirable for climate change, but also because it is a low-cost, and often the lowest-cost, source of electricity. If finance for decarbonization is at high cost, the burden of decarbonization is much higher – because fossil-fuel-based power is then typically cheaper and easier to finance.


Although the need and technological pathways for decarbonization are now relatively well understood, the financing terms for zero-carbon power are not yet supportive of this transition. In the analysis below, we explain why decarbonization hinges on the financing terms, how financial market regulations can help to tip the balance, and the limits of financial sector initiatives alone to decisively accelerate decarbonization. Clear government policies are vital to guide financial decisions towards decarbonization.



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