CCUK hosts panel discussing how to mobilise capital for climate action

The Cornell Club UK (CCUK) recently hosted a virtual presentation and panel discussion focusing on the vital role of climate finance from developed to emerging economies in facilitating the global transition to renewable energy.

Cornell visiting professor Alissa Kleinnijenhuis presented her latest research, which makes the economic case for large-scale climate finance policy as part of the solution for a timely and just transition to renewable energy, with a focus on phasing out fossil fuels, focusing on coal in particular.

Paying coal operators in emerging and developing markets to stop production, however, not only requires a very small investment today for advanced economies (just 0.3% of GDP), but also yields a significant economic net benefit for the financier countries and citizens. The economic benefits for financier countries are even stronger for financing the coal phase out of developed nations, and accrue on a short 2030 time horizon, accumulating substantial benefits by 2050.

Alissa shared how carbon taxation alone is insufficient to achieve net-zero emissions within the timeframe as set out in the Paris Climate Agreement, as current greenhouse gas pricing does not adequately reflect the social cost of carbon.  Climate finance mechanisms, therefore, are crucial to complement carbon taxation. These mechanisms can fund the early retirement of fossil fuel assets and their replacement with renewable energy sources, offering significant economic benefits to all parties. Alissa’s research shows that the global net economic gain from phasing out coal, including avoided climate damages and reduced air pollution, is estimated at $78 trillion in net present terms over the 2024-2100 time horizon.

Alissa highlighted country platform partnerships, such as the Just Energy Transition deals, as effective models for specifying annual emission reduction targets, creating an associated phase out pipeline for fossil fuel assets, and phase-in pipeline for replacement renewables and supporting technologies.

Her work shows there is an economic case for financier countries to offer subsidies close fossil fuel assets early (i.e., pay for the stranded asset value of fossil fuel and the social transition cost of coal communities) and to offer public funds to attract capital markets for financing the phase in of replacement renewables by de-risking renewable investments, by means of country-level blended finance.

Climate finance at scale that subsidizes the opportunity cost of coal and co-finances the investment costs in replacement renewables delivers advanced countries a net economic gain. Paying for early closure of coal asset is an economic bargain (costing hundreds of billions), whereas the benefits from avoided coal emissions are in the hundreds of trillions). It is not only important to get political buy-in from EMDE economies, but taking this approach is critical to stay within the remaining carbon budget to limit global warming to 1.5 or 2 degrees.

Ergem Tohumcu, Sustainability Marketing Faculty at Foordham University and Co-Founder of FuturerWise Partners and Basak Beyazay-Odemis, Carbon Finance Lead, Climate Business Department at the International Finance Corporation (World Bank Group) also joined the panel that followed Alissa’s presentation to further explored how more capital can be mobilised behind the climate transition, and how best to achieve the goals set out in the Paris Agreement.

Basak shared insights into the current state of carbon markets, highlighting challenges faced by projects like REDD+ and the need for improved methodologies to ensure the credibility and effectiveness of carbon offset projects, noting that the carbon offset projects with accounting issues were a tiny minority of all projects. Basak also highlighted how carbon markets remain a valid decarbonization strategy, with companies utilizing them showing greater emission reduction efforts compared to those that do not, which suggests they are not just a greenwashing tool.

Ergem then highlighted the communication challenges in climate finance, and advocated for more well-substantiated, data-backed evidence as essential for convincing traditional investors. “Changing minds and hearts is one of the hardest things,” Ergem noted, stressing the need for clear communication of the benefits and costs of inaction to all stakeholders, including businesses, investors, governments, and the public.

For example, India’s recent heatwave has significantly impacted productivity, demonstrating the economic costs of climate inaction. According to a study done in the US, “With 32 degrees Celsius, productivity slumps by 20%. At 37 degrees, it drops by 70% and the projected loss of productivity can cost around $500 billion annually by 2050,” she detailed, demonstrating a tangible cost to business and lost government revenue.

The panel also touched on the need for a multi-stakeholder approach; “We need a multi-government approach as opposed to one-sided thinking,” Ergem emphasized. She also stressed the importance of policy and international cooperation to manage stranded assets and ensure a fair transition. Ergem highlighted the critical role of policy in driving change, stating, “We see offloading of stranded assets by companies and governments, which requires coordinated policy action.”

Lastly, the discussion addressed the need for more blended finance, subsidies, public funds, and catalytic first-loss capital in climate finance. Basak explained that small amounts of public funds could leverage significant private investments, making it attractive for investors to support renewable energy projects and speeding up the transition by making it economically attractive to private investors.

In conclusion, the panel highlighted that scaling climate finance of advanced countries for EMDEs is not only critical for achieving a just and timely transition to renewable energy, but is economically sensible, providing net economic benefits to the financier countries. By adopting systematic approaches and leveraging data-driven insights, global decarbonization efforts can be significantly accelerated.

Even if advanced countries decarbonize in time, the world will be headed for a climate disaster if EMDEs – where most emissions in the 21st century will stem from – cannot be brought on board for the timely at scale transition. It is in the economic interest of advanced countries to move their climate policy beyond achieving net-zero goals within their borders to include EMDEs.

You can view the full recording of the event here: