24 September 2019

Project Syndicate: How to finance the green transition

Given the scale of the climate crisis, we are not moving nearly as fast as we should be. We have been stuck in second gear for too long. Accelerating the pace of change will require a combination of efforts from all actors, public and private.

As an international community, we must not only increase investment in clean energy, but also cut funding for dirty energy. As matters stand, we are essentially paying to promote climate change and air pollution through fossil-fuel subsidies. Those public funds need to be redirected toward investments in electric vehicles and other game-changing technologies that will drive the green transition. Such investments will have far-reaching returns, not least by reducing the enormous toll that air pollution takes on public health.

Beyond that, there are a number of additional steps we can take to marshal the necessary funding. First, we must improve data and disclosure standards. Because businesses and investors were long in the dark about climate-related risks, they did not see fit to cut carbon emissions or protect assets from extreme weather. That is starting to change. Recommendations from the Task Force on Climate-related Financial Disclosures are helping businesses allocate capital more sustainably, and enabling investors to reward companies that take climate change seriously.

Second, we must clarify the investment risks associated with green finance. Cities are responsible for more than 70% of carbon-dioxide emissions, but only a few cities in the developing world have a credit rating. 

Third,we need to modernize the electricity grid. Incentives like rebates and tax credits allowed wind and solar power to expand, by driving down costs for businesses and consumers. 

Finally, we must continue to expand the market for green investments. 

Full press release on Project Syndicate

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