Author: ["Gokul C. Iyer","Leon E. Clarke","James A. Edmonds","Brian P. Flannery","Nathan E. Hultman","Haewon C. McJeon","David G. Victor"]
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Abstract
Assessments of emissions mitigation patterns have largely ignored differences in investment risk across technologies and regions. With a model accounting for such differences in the electricity generation sector, research now finds that mitigation costs are higher than with no risk variation, and highlights the importance of institutional reforms to lower investment risks. 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.Cite this article
Iyer, G., Clarke, L., Edmonds, J. et al. Improved representation of investment decisions in assessments of CO2 mitigation. Nature Clim Change 5, 436–440 (2015). https://doi.org/10.1038/nclimate2553 