Funding Climate Change Efforts

Fighting climate change is expensive. Unchecked global warming leads to climate disasters like sea level rise, ecosystem disruption, and intense drought. The United Nations Intergovernmental Panel on Climate Change estimates that it will cost around $2.4 trillion to stave off the worst effects of climate change. The Paris Agreement outlines several courses of action to keep global temperatures below 1.5 degrees Celsius of warming, including adaptation and mitigation strategies. Initiatives that aim to fund these strategies are known as climate finance. Countries pledged $100 billion towards climate finance initiatives by 2020, but have fallen far short of their target. Climate finance flows need to increase by 590 percent in order to achieve the world’s 2030 climate objectives. Currently, public finance makes up 51 percent of total climate financing efforts, amounting to $321 billion in 2019. The private sector contributed $310 billion in 2019, comprising the other half of climate finance efforts. Scholars have presented a variety of methods to increase climate funding to the necessary levels. Suggestions about public finance include introducing disclosure and transparency requirements to sovereign donations, encouraging donations to funds like the Adaptation Fund that provide streamlined accreditation processing for countries to qualify, and creating climate health for public debt swap programs. Suggestions in the private sector revolve around the incorporation of environmental, social, and governance (ESG) matters into business decisions. ESG initiatives include using green bonds that earmark bond profits for climate-related projects and incorporating climate vulnerability into sovereign debt ratings. Some experts, however, argue that allowing climate vulnerability to impact debt ratings creates a systemic risk for the global financial system. Some activists argue that climate finance also needs to incorporate environmental justice considerations. They argue that historically high-emitting countries such as the United States should invest more in clean energy technologies and carbon reduction, and even treat past carbon emissions as debt based on the social cost of carbon. This week’s Saturday Seminar discusses regulatory options for climate finance goals