“Governments must orchestrate the energy transition as forcefully as they did to respond to Covid-19”

Lhe question of financing climate action is the main source of distrust between the countries of the North and the South, but also the biggest obstacle to limiting global warming to well below 2°C. Well-known and proven financial instruments are available, but they are underutilized. The more pressing question is how to make them work in credible North-South partnerships. If we don’t meet this challenge, everyone will lose.

Yet we have, with the Paris Agreement, a common and shared understanding and legally binding treaty signed by 196 countries. We have increasingly proven alternative technologies to fossil fuels, the costs of which are falling rapidly. We have a lot of academic work on how to feed that into systemic changes and changes in our consumption patterns to create climate-resilient, more equitable and job-creating development pathways.

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All of this is doable, but requires large-scale investment. It is relatively easy for the 15% of the world’s population who live in the richest countries, but much more difficult, within their means, for the 85% of the world who do not have the same financial means and must make a big leap in their evolution social and economic. Finance is the hub on which these changes depend.

Governments need to orchestrate the energy transition as strongly as they responded to the pandemic, but most of the funding will come from the private sector. The combined size of the global financial system is $400 trillion (€384 trillion), growing at 7% annually, or $28 trillion more each year. Reallocating just a quarter of the annual growth in returns on these financial assets to climate change mitigation would be enough to cost-effectively finance the estimated $5 trillion to $7 trillion needed each year to ensure climate transition on a global scale in the next few years. twenty years. There is therefore no overall macro-financial constraint problem.

Reallocation of capital

The main problem is to reallocate capital from where it resides, predominantly in the richest regions of the world, i.e. in the North (75% of global assets), to where it is most scarce in the South, in developing countries. In the absence of such a reallocation, much of global finance is either generating low or negative returns in the banking systems of rich countries, or moving towards repeated asset bubbles in assets such as cryptocurrencies, corporate “zombies” and overly inflated real estate markets. Six joint approaches are needed to bring the global financial system into line with the Paris Agreement, none of which constitute a silver bullet.

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