Promoting low-carbon transitions: a study on climate finance under a computable general equilibrium framework

Abstract

The motivation of this thesis derives from the Paris Agreement commitment of developed countries to mobilize $100 billion on climate finance (CF) by 2020. A few studies in the literature have addressed what are the economic effects of scaling-up climate finance to this goal. This thesis investigates the effects that different forms of allocation of CF flows would produce in the recipient regions. Hence, an innovative approach is developed to consistently represent these flows in a global Computable General Equilibrium (CGE) model. Overall, the results evidence the benefit from receiving CF flows relatively to a reference scenario and suggest that in regions like Brazil and South America, in which capital cost becomes substantially lower due to CF flows allocation, a greater share of renewables is found. In turn, negligible effects in terms of CO2 emissions reduction are found in regions with low capital cost, which is the case for India and China. Moreover, a third pattern is found in regions like Africa or South Africa, with no spillover effects registered, due to a combination of high capital cost and renewable infrastructure deployment at initial stages. Finally, the results suggest that CF flows can induce productivity shocks in developing economies, but capital endowments must be examined as part of the debate on their allocation. Further methodological developments of the model should include improvements in the representation of investment and capital accumulation, and future studies should better represent the labor market and households income in the model.