Webinar
As the world faces rising emissions, the global net-zero transition has yet to begin, with annual emissions at an all-time high. While advanced countries are making progress in decarbonization, their efforts are offset by rising emissions in emerging and developing market economies (EMDEs). With less than six years of carbon budget remaining to limit global temperature rise to close to 1.5°C, and each extra 0.1°C increasing the risk of more severe climate outcomes, the need for EMDEs to decarbonize rapidly is critical. The climate crisis, driven predominantly by fossil fuel use, demands targeted climate finance to phase out fossil fuels and scale up renewable energy in these regions. Achieving net zero requires climate finance at scale, particularly in a world where incomplete carbon taxation persists, with the global average carbon tax around $4/tCO2—far below the Social Cost of Carbon (SCC), such as the recent estimate of $1,056/tCO2 presented by Adrien Bilal and Diego Känzig in the 16th Episode of the CEPR/EAERE Webinar Series.
In the 17th Episode of the CEPR/EAERE Webinar Series, on Monday 28 October 2024, from 4PM (CET), 11AM (EDT), and 3PM (GMT), Patrick Bolton (Imperial College London and CEPR) and Alissa M. Kleinnijenhuis (Cornell University, Imperial College London and CEPR) will present their paper “The Economic Case for Climate Finance at Scale”. The paper lays out the first economic case for scaling up climate finance from advanced countries to support EMDE decarbonization, particularly focusing on coal, the most polluting fossil fuel. With COP29 approaching and its agenda centered on setting a New Quantified Goal of Climate Finance (aiming to increase the $100 billion-a-year climate finance pledge to over $1 trillion a year), the paper’s findings are especially relevant. It empirically shows that large-scale climate finance is not only equitable but also economically beneficial for advanced economies.
To deliver these benefits, climate finance at scale must cover both the investment costs of renewable energy and the opportunity costs of phasing out fossil fuels early. While the closure of fossil fuel assets requires subsidies, as they no longer generate revenue (or can be compensated through carbon credits), renewable energy investments can be financed through a blend of public and private funding. System-wide blended finance—offered to countries as a package—can help create a pooled pipeline of renewable projects, where private returns are enhanced through public investment.
The paper demonstrates that conditional financial support is essential to limit global warming, beneficial from the perspective of advanced economies, and financially feasible. While the global economic benefits of phasing out coal are significant, the costs of doing so outweigh the benefits for EMDEs. However, the collective benefits for advanced economies far exceed those costs. These net benefits remain positive even for smaller coalitions of advanced countries, such as the G7 or G7 plus the EU. The fiscal costs of financing the coal exit in EMDEs (excluding China) are modest—around 0.3 percent of G7+EU GDP annually, assuming public participation in about 25 percent of the renewable energy investment costs through system-wide blended finance.
The discussants, Geoffrey Heal (Columbia University and CEPR) and Lasse Heje Pedersen (Copenhagen Business School and CEPR), will provide complementary perspectives on the paper. Heal’s recent work on Blended Finance aligns with the presented paper’s focus on system-wide blended finance, while Pedersen’s research on Green Finance vs. Carbon Taxation, as explored in his CEPR VoxTalks Climate Finance podcast, finds that financial markets alone cannot achieve the necessary SCC. Pedersen’s paper is fundamental as it shows that green finance without government intervention cannot replicate a reasonable SCC, so if financial markets are to make a difference at the magnitude required to solve the climate crisis, system-wide public-private climate finance is likely important, which brings us back to The Economic Case for Climate Finance at Scale.
