Representation of financial markets in macro-economic transition models—a review and suggestions for extensions

Abstract As the energy transition accelerates and renewable technologies become cost-competitive with fossil fuels in many countries, availability of finance could a bottleneck. Integrated assessment models (IAMs) other macro-economic (MET) typically do not feature detailed financial markets sufficiently consider financing barriers opportunities for to carbon neutrality. While progress has been made representation macro-models since crisis 2008 focus on (in)stability sector, its ability investment projects transition. Hence, crucial gap remains, preventing macro model-based analysis policy interventions that may accelerate In this article we review how state-of-the-art sector. From identify what elements are still missing adequately model dynamics challenges specifically. Based discussion relevant parts literature, then propose four steps improve global IAMs MET more generally.