Capital Markets, Institutions and Distributional Effects: Towards Ambitious Climate Policy in Low- and Middle-Income Countries
Background Paper Forum Climate Economics 9
The present paper sheds light on barriers to the implementation of ambitious climate policy measures in low- and middle-income countries (LMICs). Often, LMICs are not in the focus of international climate negotiations. Yet, enabling their transition to zero-carbon energy systems without jeopardizing development goals is indispensable to preserve the chance to reach the global targets of the Paris Agreement. Discussing the various obstacles in this heterogeneous group of countries, we show that only to strive for sufficiently large transfers would be too simplistic. Instead, the key to successful climate policy measures often lies in creating and enhancing domestic institutions which, for instance, more effectively compensate the least well-off, enable a smooth functioning of capital markets and promote the formation of a public consensus instead of vested interests.