Emissions pathways after COVID-19 will be shaped by how governments’ economic responses translate into infrastructure expansion, energy use, investment planning and societal changes. As a response to the COVID-19 crisis, most governments worldwide launched recovery packages aiming to boost their economies, support employment and enhance their competitiveness. Climate action is pledged to be embedded in most of these packages, but with sharp differences across countries. This paper provides novel evidence on the energy system and greenhouse gas (GHG) emissions implications of post-COVID-19 recovery packages by assessing the gap between pledged recovery packages and the actual investment needs of the energy transition to reach the Paris Agreement goals. Using two well-established Integrated Assessment Models (IAMs) and analysing various scenarios combining recovery packages and climate policies, we conclude that currently planned recovery from COVID-19 is not enough to enhance societal responses to climate urgency and that it should be significantly upscaled and prolonged to ensure compatibility with the Paris Agreement goals.
This paper explores the potentially critical role of central banks, financial regulators and finance industry coalitions in stimulating private cross-border climate-related investment flows – particularly into developing economies. The transition to a ‘net zero’ emissions global economy will require massive investment in low-carbon assets over the coming decades, accompanied by a reallocation of capital from high-carbon assets. For such financial flows to occur, institutional investors will need greater clarity on how net zero portfolio alignment is defined and measured, and on the climate risk characteristics of specific financial instruments. Among other measures, central banks and financial regulators can aid this process by developing more uniform reporting standards for climate investments. Financial authorities can also encourage portfolio realignment by increasing capital requirements for loans associated with high-emissions investments, and similarly by adjusting collateral rules for high-emissions assets. In addition, central banks may be able to play an ‘active’ role in reshaping markets, for example by giving preference to net zero-compliant assets in their own bond holdings and foreign reserves.
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