World Needs More Policy Ambition, Private Funds, and Innovation to Meet Climate Goals

IMF Blog, November 27, 2023

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Eight years on from the Paris Agreement, policies remain insufficient to stabilize temperatures and avoid the worst effects of climate change.
Limiting global warming to 1.5 degrees to 2 degrees Celsius and reaching net zero by 2050 requires cutting carbon dioxide and other greenhouse gases by 25 percent to 50 percent by 2030 compared with 2019.
Current global commitments reflected in nationally determined contributions would reduce emissions by just 11 percent by the end of this decade.
Current policies are not consistent with commitments: business-as-usual policies would see annual global emissions increase by 4 percent by 2030 and reach a cumulative level sufficient to breach the 1.5-degree target by 2035.

A fair approach: countries should target cuts in emissions in line with per capita incomes.
To keep within 2 degrees of warming, required emissions reductions by 2030 are:
- high-income countries: 39 percent
- upper-middle-income countries: 30 percent
- lower-middle-income countries: 8 percent
- low-income countries: 8 percent
To stay below 1.5 degrees of warming, more drastic emissions cuts of:
- high-income countries: 60 percent
- upper-middle-income countries: 51 percent
Policy centerpiece: a robust carbon price—rising to a global average of at least $85 per ton by 2030—to provide broad incentives to reduce carbon-intensive energy, shift to cleaner sources, and invest in green technologies.
Fiscal and distributional effects of carbon pricing:
- Around 20 percent of carbon pricing revenues can more than compensate the poorest 30 percent of households.
Fossil fuel subsidies:
- Explicit fiscal costs of fossil fuel subsidies have risen to a record $1.3 trillion annually.
- Countries must act to phase out such subsidies.
International cooperation on pricing and competitiveness:
- An agreement among large emitters—such as a progressive deal between China, the European Union, India, and the United States—would cover over 60 percent of global greenhouse gas emissions and could spur broader adoption.

Investment needs:
- Low-carbon investments must rise from $900 billion in 2020 to $5 trillion annually by 2030 to reach net zero by 2050.
- Emerging and developing countries (EMDEs) need $2 trillion annually by 2030, a fivefold increase from 2020.
Public finance constraint:
- Even if advanced economies meet or somewhat exceed their promise to provide $100 billion a year, the bulk of financing will need to come from the private sector.
Required shift in finance composition:
- Private sector share of climate finance must rise from 40 percent to 90 percent of the total in EMDEs by 2030.
Policies and instruments to mobilize private capital:
- Targeted economic policies and governance reforms to lower capital costs.
- Blended finance combining private capital with public and donor funding, including multilateral development banks, using instruments such as first-loss capital, credit enhancements, or guarantees.
- Global policies to increase transparency and comparability of projects, standardize taxonomies, and strengthen climate-related disclosure requirements.

Emissions reductions from existing technologies:
- Of the 50 percent cut to emissions needed by 2030 to stay on track for the 1.5-degree target, more than 80 percent can be achieved from technologies available today.
Net-zero by 2050 requires technologies still under development or yet to be invented.
Trends in green innovation:
- Patent filings for low-carbon technology peaked at 10 percent of total filings in 2010 and have since declined.
- Key technologies are not spreading fast enough to emerging and developing countries.
Policies to boost innovation and diffusion:
- Climate policies—such as feed-in tariffs and emissions trading schemes—boost green innovation and investment flows, and help spread low carbon technology across borders.
- In some countries, lowering trade barriers can accelerate imports of low carbon technologies by 20 percent to 30 percent.
- International cooperation is critical to avoid protectionist measures that would impede technology spread.

IMF instruments and integration of climate lens:
- The Resilience and Sustainability Trust provides long-term financing on affordable terms to help vulnerable middle- and low-income countries cope with threats such as climate change.
- The $40 billion trust has already supported programs for 11 countries, with twice that number in the pipeline.
- For its wider membership, the IMF adds a climate lens to economic analysis, policy advice, capacity development and data provision.
Rationale: macroeconomic and financial sector policies are critical to harnessing the opportunities of the green transition for low-carbon, resilient growth, and jobs.

IMF Blog post by Simon Black, Florence Jaumotte, Prasad Ananthakrishnan — November 27, 2023.