An annual infusion of US$300 billion in green bonds, funded by the world’s central banks, would be enough to shake loose the $2 trillion per year in private investment that will be needed to hasten the post-carbon transition and keep average global warming to 1.5°C, veteran Canadian climate hawk Guy Dauncey writes in a recent blog post.
The idea, first put forward by Matthias Kroll, chief economist at the World Future Council, is “the biggest climate solution you have never heard of,” Dauncey declares.
The importance of Kroll’s plan is measured by the gap between the international climate finance available and the funds that will be needed to get the job done.
At the 2009 United Nations climate conference in Copenhagen, countries agreed to direct $100 billion per year to the UN’s Green Climate Fund (GCF), beginning in 2020. With that deadline approaching, Dauncey notes, pledges total only $10 billion—including $3 billion from the U.S. that will not be forthcoming from the Trump administration.
But to hit long-term climate targets, “there needs to be an annual investment of up to $2 trillion a year in a rapid global energy transition to renewable energy” and pursuing a wider menu of climate solutions.
Kroll’s solution to that challenge is “elegant in its simplicity,” Dauncey writes. “The world is full of climate investment opportunities, but investors need to see the prospect of a sufficient return before they are willing to invest.” To leverage that activity, central banks would turn their $300 billion per year over to the GCF or some other climate finance institution. It would then be distributed “in the form of subsidies, loan guarantees, start-up financing, support for renewable energy feed-in tariffs, support for the purchase of threatened rainforests, or incentives to persuade farmers to make the transition to organic farming, ranchers to make the transition to holistic grazing management, and foresters to make the transition to ecosystem-based sustainable forestry, all of which are known to increase soil carbon storage.”
With a global GDP of $80 trillion, the $300-billion cash infusion would not be inflationary, Dauncey notes. Nor would the plan use up enough funds to impair central banks’ ability to respond to a future economic crisis.
The strategy would run the risk of creating a “new climate boondoggle,” he acknowledges. To address that possibility, the approval process for the fund “would need to be rigorous, using pre-agreed categories (excluding projects like hydro dams and many types of biofuel), and the penalty for abuse might be exclusion from access to all future Green Climate Fund financing for 20 years, along with whatever penalties local jurisdictions might see fit to impose.”