Abstract
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).
About the speaker
Alissa M. Kleinnijenhuis is a Visiting Assistant Professor of Finance at the Cornell SC Johnson College of Business, Cornell University and is affiliated with the Imperial College Business School's Finance Department. Alissa is also Research Associate at the Institute for New Economic Thinking (INET) at the Oxford Martin School of the University of Oxford, a Non-Resident Fellow at Bruegel (an EU think tank specializing in economics), an RPN Member of Sustainable Finance at the Centre for Economic Policy Research (CEPR), and a Faculty Fellow of the Cornell Atkinson Centre for Sustainability. She taught the first course at Stanford University on Climate Finance. In Fall 2023, she started teaching the inaugural Climate Finance course at the Cornell SC Johnson College of Business. In October 2023, she launched a novel podcast series, VoxTalks Climate Finance, as part of the highly regarded VoxTalks of CEPR, which seeks to play a formative role in covering the debates at the frontiers of the field that will shape the future of finance when it comes to climate.
Alissa actively collaborates with and advises governments, central banks, corporations, think tanks, and international institutions – including the European Central Bank, the Bank of England, the International Monetary Fund, the African Development Bank, and Fidelity Investments. Alissa is the founding editor of the Handbook of Financial Stress Testing (Cambridge University Press, 2022), which features contributions by leading scholars, public sector officials, and practitioners on the topic of stress testing, and includes a preface by Timothy Geithner and endorsements by Ben Bernanke and Christine Lagarde. She is also a founding editor of “Elements in Climate Finance,” a novel publishing format of Cambridge University Press, combining features of books and journals. Since 2023, she has organised the Young Scholars’ Webinar on Climate Finance and Economics (supported by the E-Axis Forum).
Alissa's research examines how finance can advance the public good, focusing on leveraging the financial sector for a climate change solution. Her research in her primary area of focus, climate finance, examines how financial incentives can be aligned with limiting climate risks and financing the transition to a carbon-neutral and sustainable economy. Her research is all about making the triangular sectors of finance – the public, private, and academic sectors – work for the green transition. Her second area of expertise concerns financial stability, financial crises, financial stress testing, and financial regulation. Her third area of expertise is asset pricing and mathematical finance; she has also taught courses in these areas at the University of Oxford.
Alissa holds a BS from Utrecht University in Economics and Mathematics (cum laude), an MSc in Mathematics and Finance from the Imperial College London, and a D.Phil. (Ph.D.) in Mathematical and Computational Finance from the University of Oxford (Mathematical Institute). She was a Postdoctoral Fellow at the MIT Sloan School of Management and the MIT Golub Centre for Finance and Policy (GCFP) at the Massachusetts Institute of Technology (MIT), and a Research Scholar at the Stanford Institute of Economic Policy Research (SIEPR) at Stanford University. She held a Visiting Scholar position at Yale University and the University of California Santa Barbara, and has worked for Morgan Stanley and Allianz Global Investors.