From climate finance toward sustainable development finance

Abstract

Decarbonizing the global energy system requires large‐scale investment flows, with a central role for international climate finance to mobilize private funds. The willingness to provide international finance in accordance with common but differentiated responsibilities was acknowledged by the broad endorsement of the Paris Agreement, and the Green Climate Funds in particular. The international community aims to mobilize at least USD 100 billion per year for mitigation and adaption in developing countries. In this article, we argue that too little attention has been paid on the spending side of climate finance, both in the political as well as the academic debate. To this end, we review the challenges encountered in project‐based approaches of allocating climate finance in the past. In contrast to project‐based finance, we find many advantages to spending climate finance in support of price‐based national policies. First, the support for international climate cooperation is improved when efforts of successively rising domestic carbon pricing levels are compensated. Second, carbon pricing sets incentives for least‐cost mitigation. Third, investing domestic revenues from emission pricing schemes could advance a country's individual development goals and ensure the recipient's ‘ownership’ of climate policies. We conclude that by reconciling the global goal of cost‐efficient mitigation with national policy priorities, climate finance for carbon pricing could become a central pillar of sustainable development and promote international cooperation to achieve the climate targets laid down in the Paris Agreement. WIREs Clim Change 2017, 8:e437. doi: 10.1002/wcc.437 This article is categorized under: Climate Economics > Economics and Climate Change Climate and Development > Decoupling Emissions from Development

Distributions of carbon pricing on extraction, combustion and consumption of fossil fuels in the global supply-chain

“…Since non-OECD nations have the largest share of global emissions (extraction, production and consumption) they will get more absolute revenue than the world average, and OECD regions will get less. In many cases, the increased revenue by applying a carbon tax may compensate for lost revenue in fossil fuel markets, and more broadly, offer effective ways to mobilize climate finance (Steckel et al 2017).…”

Parallel Tracks Towards a Global Treaty on Carbon Pricing

“…Other suggestions for use of the money are provided by the literature on climate finance. 73 The club and its goals could be promoted, and new members invited, during UNFCCC COP meetings. This would also allow for the club to put pressure on UNFCCC climate negotiations, involving all countries, to make progress and move towards carbon pricing.…”

Towards a comprehensive approach to climate policy, sustainable infrastructure, and finance

“…Finally, revenues from carbon pricing could serve as a means to ramp up domestic resource mobilization, being one of the main goals stated in the Addis Ababa Action Agenda. Climate finance can play an important role in supporting such national carbon pricing efforts (Steckel et al, 2017).…”