INNOVATIVE CLIMATE FINANCE
7.1
Addressing the ØáÞâÖéÚěãÖãØÚÜÖå a path forward for global emissions alignment and ambitious action
The sheer scale of the climate crisis necessitates transform- ing the financial system, bring- ing private partners into the fold and creating the right enabling environment.
T he stark reality of the cli- mate crisis presents us with an inescapable truth: global emissions are not on track to meet the goals of the Paris Agreement, and the effects of rising temperatures are ever more devastat- ing, especially in those countries most exposed to climate change. In this crit- ical hour, we need an unprecedented level of ambition in both climate action and climate finance. The International Energy Agency reckons that climate investment must double in advanced economies and China, and quadruple in the rest of the world by 2030. The sheer scale of the challenge highlights the need for a transformation of the financial system. Bridging the financ- ing gap requires a holistic approach that looks at the role of all actors, finance sources and policy levers. Public finance is a central driver of climate action. Budgetary constraints, however, require that its efficacy be improved. Domestically, this means first and foremost ensuring that public finance ‘does no harm’: invest- ments and public subsidies in high-emission activities should be redirected to clean technologies and infrastructure. Setting the right incen- tives and price signals is crucial. In this respect, carbon pricing remains the most effective tool at our disposal. Besides encouraging a shift to less carbon-intensive alternatives, car- bon pricing can also provide a boost to
public finances, as well as resources to compensate the most vulnerable during this transition period. For instance, the revenues of the European Union’s new Emissions Trading Scheme for build- ings, road transport and fuels will feed into a Social Climate Fund that supports the people and businesses most affected by this measure. The EU’s carbon border adjustment mechanism is another such example. Despite still being in a transi- tional phase of implementation, CBAM is already inspiring other countries to introduce or strengthen their carbon pricing frameworks. At the international level, optimis- ing the use of scarce public resources means facilitating synergies among multilateral development banks to increase the impact and scale of their work. This is a powerful lever, consid- ering that MDBs manage an estimated $2.2 trillion of global assets. The Euro- pean Union is engaging with its G20 partners to develop a roadmap for MDBs to be “bigger, better and more effec- tive” and work as a system to facilitate access to climate finance, in particular for developing countries. Closing the gap Despite rhis effort, the scope of climate-related investment needs goes well beyond the reach of the public purse. Closing the financing gap requires pub- lic investment to be complemented by private funding. Well-developed, liquid and integrated capital markets
Paolo Gentiloni, European Commissioner for Economy
BESIDES ENCOURAGING A SHIFT TO LESS CARBON-INTENSIVE ¼ÇÏÀÍɼÏÄÑÀÎ CARBON PRICING CAN ALSO PROVIDE A BOOST TO PUBLIC ÁÄɼɾÀμÎÒÀÇÇ AS RESOURCES TO COMPENSATE THE MOST VULNERABLE DURING THIS TRANSITION PERIOD.
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Financing a Just Transition
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