King’s College London: New research reveals 3 neglected, major pathways to free up staggering $9.2tn it costs annually to fund global net zero transition This paper serves as a roadmap for policymakers and financial institutions to mobilize climate finance, building on existing initiatives such as green banks and the Canada Infrastructure Bank.
The Power of Multilateral Dependence
It points to a large untapped potential in amplifying the MDBs’ impact at no additional budget costs to governments.
The researchers say the 13 MDBs working in developing countries could together raise their stock of development assets by nearly USD 1.2 trillion, more than two and a half times, while still being able to maintain their present AAA credit ratings.
In addition, under a AA rating scenario (as opposed to AAA), MDBs could have leveraged further $1-1.2 trillion allowing MDBs to substantially scale their investments in sustainable development and climate action.
By pooling their resources and catalysing private sector investment through blended finance, MDBs can make the case for sustainable infrastructure, especially in developing countries where the demand for clean investments is greatest.
Catalyzing Carbon Markets_icallThe Power of Enabled Carbon Markets
Another overlooked source to fund the net zero transition comes from carbon markets (ie Emissions Trading Systems ETS and voluntary carbon markets).
In 2023, governments generated $74 billion through Emissions Trading Systems that can be re-invested in net zero projects and initiatives. But the report recommends that Markets can be made more attractive and efficient through strategic partnerships and regulatory support.
By incorporating carbon markets (such as ETS and GGRs — Greenhouse Gas Removal schemes) into global governance, governments would increase their transparency, efficiency on the market side and strengthen price signaling for the promotion of decarbonization, according to our authors. So it also creates economic incentives for business and government to invest in clean technologies and to adopt carbon pricing.
It also points to the promise of voluntary carbon markets, where developers of carbon removal and reduction schemes issue “carbon credits” that anyone can trade. In so doing, such voluntary markets can serve as another trusted and appealing clean finance investment product for net zero projects.
Conclusion
The King’s College London report reveals three under-discussed yet major $9.2 trillion/year solutions for how we can finance the global transition to net zero emissions.
Policymakers and financial institutions can unlock this missing capital for a climate-fit world: one third by relying on the sprawling untapped strength of multilateral development banks, 28 percent through carbon pricing mechanisms, and 42 percent via innovative partnerships between banks, investors and regulators.
While the world gears up for COP29 and beyond, this research offers a way of realizing the vital funding we need to deliver on our net zero pledges and secure an enduring future for everyone.
