Climate Finance to Decarbonize the Global Power Sector

In this paper, we empirically study the climate finance needs required to decarbonize the global power sector. The power sector is the single largest source of CO2 emissions, responsible for 15.1 Gt out of 42 Gt annually, and offers the highest decarbonization potential prior to 2035 (14.7 Gt). We make use of a novel dataset by Forward Analytics giving detailed asset-level information on global power sector plants. We demonstrate a strong economic case for developed countries to provide climate finance to developing countries to replace fossil fuels with renewables. Specifically, $2.8 trillion in public climate finance ($256 billion annually) can leverage $7.7 trillion in private capital ($702 billion annually). The economic return on this investment is between 180% and 1457%, resulting in a net economic benefit of $7.9–43.8 trillion, at a fiscal cost of just 0.5% of developed countries’ annual GDP. Additionally, we evaluate cost-effective strategies for phasing out fossil fuels and scaling up renewables, accounting for land-use constraints. Our findings are highly relevant for countries aiming to design, finance, and implement Paris pledges, such as Nationally Determined Contributions (NDCs).