The Economics of Climate Mitigation: Exploring the Relative Significance of the Incentives for and Barriers to Low-carbon Investment in Urban Areas

Achieving net zero emissions by 2050, as envisioned in the Paris Agreement, will require radical changes to urban form and function. Securing the necessary commitments and resources will be easier in the presence of a compelling economic case for mitigation. Focusing on Recife in Brazil, this article evaluates a wide range of low-carbon measures under different discount rates and energy prices. It finds that under less favourable conditions (high discount rates, constant energy prices), the city could reduce its emissions by 15 per cent, relative to business-as-usual (BAU) trends, through investment which would generate returns at market interest rates. Under more favourable conditions (low discount rates, increasing energy prices), the city could reduce emissions by 25 per cent with market-rate returns. That these opportunities have not been exploited indicates that barriers to low-carbon investment, including poor provision of information, transaction costs and capacity deficits may be of greater importance than the scale of direct incentives for raising climate investment. Decision makers therefore need to prioritise the dismantling of these obstacles to low-carbon investment and fostering of norms of environmental citizenship within cities.

Urbanisation, June 2017