With climate impacts getting worse and temperature records being broken, the pressure on countries to raise more money in support of climate action continues to increase. But the ‘climate finance gap’ – the difference between the trillions of dollars needed and the amounts currently available – remains persistent, and is particularly acute in emerging markets and developing economies. Most of the new money needed will have to come from the private sector, but public funding also has a crucial role to play. Fiscal and political pressures in the advanced economies mean that public funds are in short supply. However, this only increases the importance of using the limited amount available in the most effective way possible. The prospect of reduced US political support for climate action in the wake of the 2024 presidential election makes this even more important.
This paper explores the challenges of increasing climate finance to emerging markets and developing countries. It discusses the prospects for raising more public international finance in absolute terms, and proposes ideas for using the public money that is already available – or realistically likely to become available – more effectively. Key findings include: the need for regular comparative assessment of different channels for deploying public finance in climate action; the need to enable multilateral development banks genuinely to leverage risk-bearing private finance, and for public finance generally to be exposed to more risk; and the need to address moral hazard and other perverse incentives that still skew a large amount of private investment towards fossil fuels.
