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Deep decarbonization by 2050: Rethinking the role of climate finance

Published: July, 2018

Ilmi Granoff of ClimateWorks Foundation is also an author.

There is broad consensus that limiting global warming to well below 2 degrees Celsius requires a peak in carbon emissions by 2020, a stable and steep decline through 2050, and close to net-zero emissions after mid-century. Many important actors the world over are now aligning around this 2050 lens for climate mitigation, with the knowledge that near-term incremental efforts that reduce emissions today will not be sufficient in the long run.

While the details differ, in general the models show a need for enormous progress across a whole host of technologies and across every sector of the economy. Despite our progress in understanding the array of climate solutions needed, the investment implications of achieving midcentury decarbonization are less understood beyond encouragement to “scale-up.” Given the fundamental role finance plays in all facets of the global economy, it’s time to ask: How does a focus on 2050 change how we spend money today?

As a starting point, it requires us to explore progress on mitigation finance in a more nuanced and detailed way, beyond the gross volumetric goals and indicators (e.g., dollars spent or gigawatts deployed). When dealing with the need to unlock investment across a number of technologies at various stages of market maturity and across a number of geographies, in an effort to arrive at critical market tipping points to unlock change across an entire economy, the details matter a great deal. Mission-oriented funders (whether public finance or private philanthropy and impact investors) need to understand the type, source, and specific target of finance needed across sectors and technologies to have the greatest impact on decarbonizing the global economy by mid-century.

We need to shift our focus from the quantity of finance to the quality of finance (to paraphrase Mazzucato and Semieniuk, 2018), and how to use finance most effectively to meet 2050 abatement goals. It is within this context that ClimateWorks and Climate Policy Initiative are establishing a new research agenda— Climate Investment Research Collaborative on Long-term Effectiveness (CIRCLE)—that explores the role of finance in addressing longer-term decarbonization needs. We seek to move the climate finance community beyond the focus on gross volumetric progress to one that explores more precise ways to target and assess the impact and effectiveness of mitigation investments at global scale, working to better understand what types of finance are needed, taking on which risks, for which technologies, in which geographies, and at what stage along the technology development curve.

We invite other individuals and organizations to join us in this research effort. Some of the tough questions we’re starting with include:

  1. How do we prioritize investments along the technology development spectrum, and how should different financial actors be targeted as a result?
  2. What tools can we use to target and prioritize investment for rapid diffusion of low-carbon innovations2, looking across technology development spectrum and across geographies?
  3. How can we account for the role of both overseas and domestic investment in accelerating investment in low-carbon technologies in developing countries?
  4. When should lower-cost vs higher-cost interventions be targeted first? Are we using the marginal abatement cost curves in the right way to meet long-term goals?
  5. What transactional or financial structuring innovations will be needed to support investments in new technologies?

The discussion paper and presentation, prepared for ClimateWorks’ “2050 Today” conference in June 2018, begin to explore some of these questions. For more information, please contact Ilmi.Granoff@climateworks.org or Jessica.brown@cpiclimatefinance.org.

Deep decarbonization by 2050: Rethinking the role of climate finance
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Keywords
  • climate finance
  • climate investment
  • climate policy
  • climate resilience
  • energy efficiency
  • energy finance
  • energy infrastructure
  • energy transition
  • financial modelling
  • grid
  • institutional investors
  • low-carbon electricity system