Innovations in climate finance give hope for our future

Ben Caldecott

Planetary resilience requires the rapid transformation of energy systems, which in turn requires investment at a scale not seen before in renewable and low-carbon infrastructure. We also need to dramatically improve our resource efficiency, which will involve thinking about how our economies work in a much more holistic, integrated way. Two innovations presented by Climate Change Capital to the recent Durban climate change meeting could represent a real breakthrough for climate finance for developing countries.

The transition to a sustainable, low-carbon economy is going to be complex and challenging. As we go through a sustained process of creative destruction, significant value will be both created and lost throughout the global economic system. We will move from a system based on low capital expenditure and expensive, finite inputs with dangerous externalities, to one with higher capital expenditure, but much lower marginal costs and a fraction of the environmental impact. The role of progressive investors must be to support value creation in sustainable sectors and stop condoning harmful ones. That’s central to our mission at Climate Change Capital.

One of the core functions of the international climate change negotiations – in addition to tackling the free-rider problem – is to create frameworks for capital to flow in a way that supports this transformation, particularly in the poorest developing countries. To enhance the impact of these and of limited public funds, we propose two significant innovations. The first is a new way of deploying low interest rate climate finance to enhance its impact, while the second can cost effectively generate the real cash flows needed to make environmental and developmental projects viable.

Perpetuity funds – better concessional finance

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