Introduction
- Progress is being made in increasing the proportion of private finance directed to green investment. But this is not happening fast enough, and the climate finance gap faced by low-income and emerging economies (excluding China) is acute. At the same time, AI and data centers are intensifying power needs in developed countries, which will create a negative impact on capital and other inputs for clean energy in low-income countries.
- Public international finance has a critical and unique role to play in addressing climate goals, including through helping to mobilize a more rapid shift in private finance to close the climate finance gap. But public international finance is in short supply relative to demand, and the prospects for accelerating its increase are low, given the severe pressures on public finances in traditional donor countries.
- The international community therefore needs to pay much more attention to how the currently available flows of public international finance are used and how they can be made more effective. The outcome of efforts to establish a new collective quantified goal on climate finance at COP29 should provide a clear mandate for this to happen.
- This brief utilizes a push and pull framework. On the push side, it is critical for the international policy community to better understand why so much private finance is still going to brown investment, and insofar as this reflects moral
hazard or other perverse incentives, such as hydrocarbon subsidies, to take urgent steps to push private finance away from brown investment. - Additionally, it is critical to pull private finance to green investment by improving the effectiveness of available public international finance and increasing the proportion used to facilitate genuine risk bearing in conjunction with the private sector and developing a mechanism under which this can happen without imposing residual contingent risks on advanced country-donors.
