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The economic case for adopting low-carbon trajectories in low-income countries: a test case of the electricity sector

This working paper examines the financial case behind low-income countries taking low carbon development (LCD) trajectories. The paper integrates the following economic concepts into a single economic assessment: the levelised costs of different technologies; the changing costs of renewable energy technologies; carbon markets and the cost of carbon; and rising costs of fossil fuels. The aim is to understand at what point in time (if at all) the different renewable technologies could achieve ‘grid parity’ with fossil fuel-based technologies. The results highlight that, while additional financing (through carbon markets, subsidies and so on) are important in accelerating the adoption of LCD technologies, they are not a necessary condition. The value of carbon markets in accelerating the adoption of these technologies does, however, suggest a need for some market-based mechanisms to facilitate the migration of low-income countries away from fossil fuel-based development paradigms.