The heterogeneous impacts of climate finance on energy efficiency and renewable energy production in developing countries

Abstract

Climate finance (CF) is considered to be a key financial innovation to enhance energy efficiency (EE) and facilitate the pathway to energy transition (ET). However, the varied impacts of CF on EE and renewable energy production (REP) have been masked. Thus, this study examines the heterogeneous impacts of CF on EE and REP for 81 developing countries (DCs) for the period 2002–2019. The method of moments quantile regression (MMQR) approach is used to control for distributional and unobserved individual heterogeneity. We calculate EE using parametric stochastic frontier analysis (SFA). Also, the effects of CF on EE and REP are investigated subject to income heterogeneity and based on Copenhagen (COP15) and Paris (COP21) climate accords. The findings revealed that DCs with lower REP benefit the most from increased CF, and the positive effects break down for countries with the largest distributions of REP. Besides, CF positively contributes to EE across all quantiles of DCs. The results further imply that the impacts of CF are income-dependent, with positive effects on the EE and REP of middle-income economies and more pronounced after the COP15 and COP21 climate accords. Several policy implications are forwarded based on the findings.