Climate-related development aid for renewable energy projects: an analysis of its trends and role in fostering the low carbon transition in official development aid recipients

The transition to low carbon economies is a necessary condition to fight the climate change threat. According to the IEA, the transformation needed to achieve net-zero CO2 emissions globally by 2050 requires an outstanding expansion of the investments made by the energy sector. However, investments in the generation of energy, and in particular electricity, with renewable sources are still perceived as risky, uncertain and associated with high capital needs. Green finance and, in particular, climate finance appear as a catalytic source of funds that can help attract other investments to this particular sector. In this chapter, we analyse the evolution and characteristics of climate-related development finance for the generation of electricity with renewable sources since the Copenhagen Accord in 2009, i.e. donors, recipients, technologies and instruments. Then, we revise the available policy instruments in the hands of governments to promote the transition to low carbon economies and the importance of policy mixes. Lastly, using a qualitative comparative analysis (QCA), we explore the simultaneous/complementary role played by those policy instruments and climate-related development finance for renewable energy projects in incentivising the transition to low carbon economies in ODA recipients. Results confirm the importance of different strategies and policy mixes depending on the level of development of the countries analysed. Those strategies imply different combinations of ODA, energy auctions, tax credits, renewable standards and carbon pricing. Understanding these relationships is key to fostering a faster low carbon energy transition.