The climate summit isn’t really about the climate. It’s mainly about money. This money is meant to clean up the mess caused by emitters and limit the damage, especially to countries that have contributed little to climate change. Funding to accelerate the energy transition and finance climate change adaptation. Public funds are frankly focused on the private financial sector. insufficient.
Now, more private capital is flowing in and “sustainable finance” is getting a lot of attention, but things are not going well. Reports about the “funding gap” are ringing alarm bells. We need more funding from both public and private sources towards sustainability.
the study We estimate that achieving net zero will require US$6.2 trillion in climate finance every year between now and 2030, and US$7.3 trillion by 2050. This totals almost 200 trillion US dollars.
Where are we stuck?You might wonder if this funding gap needs to be addressed in order to have more money available to meet these needs. But that’s not the case. This isn’t about more money, it’s about money going to the right places.
First of all, governments and the financial sector continue to pour huge amounts of money into fossil energy. According to the International Monetary Fund, global fossil fuel subsidies in 2022 amounted to 7 trillion US dollars, or 7.1% of global GDP. Explicit subsidies (under-charging for supply costs) have more than doubled since 2020, but still only account for 18% of total subsidies, with nearly 60% under-charging for global warming and local air pollution. This is based on the request. It’s time to stop this.
From a distance, it is easy to understand why the financial sector continues to finance fossil fuels. The demand from shareholders is to maximize profits within a legal framework, and fossil fuels have been a good investment over the past 18 months. In light of this, financial people should stop thinking about any kind of commitment and save on their trip to Dubai.
The second problem is the misconception that there is too little money. Nonsense. It can be said that money is plentiful. However, there is a lack of private capital to invest in climate change with modest return expectations. Some argue that climate finance will automatically become profitable through innovation, scale-up, etc. Probably, but it’s not fast enough and it doesn’t cover everything.
This is due to funding asymmetry. You can make money from things that are free or priced too low, but considering the social costs makes it difficult, if not impossible, to make a profit. As long as the financial sector is not forced to invest and the risks are borne by governments and taxpayers (that is, us), everything will remain the same. Stopping loans is not a profit model.
Therefore, it is not a question of lack of money. We are subsidizing and financing the wrong things. At the moment, the financial sector is a big part of the problem and not enough of the solution.
