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

_IMF Blog, November 27, 2023_

## Source details

**Canonical URL:** [World Needs More Policy Ambition, Private Funds, and Innovation to Meet Climate Goals](https://www.imf.org/en/blogs/articles/2023/11/27/world-needs-more-policy-ambition-private-funds-and-innovation-to-meet-climate-goals)

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## Bibliographic details
- Authors: Simon Black, Florence Jaumotte, Prasad Ananthakrishnan
- Published: November 27, 2023

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### Current trajectory and emissions gap
- 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.

### More ambition and stronger policies
- 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.

### Boosting climate finance and mobilizing private capital
- 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.

### Scaling up innovation and technology diffusion
- 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 role and assistance to countries
- 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.*

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## References

- [new analysis](https://www.imf.org/en/Publications/staff-climate-notes/Issues/2023/11/14/Is-the-Paris-Agreement-Working-A-Stocktake-of-Global-Climate-Mitigation-541083?cid=bl-com-CLNEA2023002)
- [fossil fuel subsidies](https://www.imf.org/en/Blogs/Articles/2023/08/24/fossil-fuel-subsidies-surged-to-record-7-trillion)
- [an agreement among large emitters](https://www.imf.org/en/Blogs/Articles/2022/05/19/blog-why-countries-must-cooperate-on-carbon-prices)
- [Our analysis](https://www.imf.org/en/Blogs/Articles/2023/10/02/emerging-economies-need-much-more-private-financing-for-climate-transition)
- [Recent IMF analysis](https://www.imf.org/en/Blogs/Articles/2023/11/06/how-green-innovation-can-stimulate-economies-and-curb-emissions)
- [Resilience and Sustainability Trust](https://www.imf.org/en/Topics/Resilience-and-Sustainability-Trust)

_Source: https://www.imf.org/en/blogs/articles/2023/11/27/world-needs-more-policy-ambition-private-funds-and-innovation-to-meet-climate-goals_