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Kenneth Gillingham

The scientific consensus is clear: climate change is associated with increasingly frequent and intense natural disasters ranging from droughts and wildfires to hurricanes and coastal flooding. While the extent of the economic damage cannot be known for certain, strong evidence suggests it could be quite severe. The challenge for policymakers will be to decide how much to spend on measures to reduce greenhouse gas emissions. To do that, they must be able to compare the costs of various options, including renewable-energy sources and electric cars.

DENNIS ANDERSON

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

Anthony A. Churchill and Robert J. Saunders

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

Luc Eyraud, Ms. Changchang Zhang, Mr. Abdoul A Wane, and Mr. Benedict J. Clements
This paper fills a gap in the macroeconomic literature on renewable sources of energy. It offers a definition of green investment and analyzes the trends and determinants of this investment over the last decade for 35 advanced and emerging countries. We use a new multi-country historical dataset and find that green investment has become a key driver of the energy sector and that its rapid growth is now mostly driven by China. Our econometric results suggest that green investment is boosted by economic growth, a sound financial system conducive to low interest rates, and high fuel prices. We also find that some policy interventions, such as the introduction of carbon pricing schemes, or "feed-in-tariffs," which require use of "green" energy, have a positive and significant impact on green investment. Other interventions, such as biofuel support, do not appear to be associated with higher green investment.
DENNIS ANDERSON and KULSUM AHMED

RENEWABLE energy technologies are now being successfully used in numerous small-scale applications on a commercial basis and for some larger-scale power generation projects. For developing countries in particular, solar energy is an abundant and environmentally attractive resource, with enormous economic promise.