Authors: Sam Marginson
A New Collective Quantitative Goal for climate finance has been agreed, with a minimum of 300 billion USD to be provided for climate action in developing countries by 2035. A further goal was agreed to increase this value to 1.3 trillion USD. Many developing countries have emissions reductions targets that are conditional on receiving sufficient finance for those targets to be achieved. This paper considers the trade-off of an extra trillion dollars in investment for the additional emissions reductions that will be achieved as a result. It considers whether those same emissions reductions could be achieved with lower impact on the income of the source regions for the investment and finds that it cannot. Should Annex I regions attempt to achieve equivalent emissions reductions themselves, the result is that incomes are lower in almost all regions and by up to 2.7% in 2030, with even some notable free riders being worse off. Output is lower in most regions and investment is also lower in most of the Annex I regions that shoulder the additional emissions mitigation burden. Globally the impacts are similarly negative, with global investment 3.5% lower in 2030. Conversely, in the case where developing countries receive the additional finance, impacts are significantly positive, with incomes up to 1% higher in 2030. However, even when the conditional emissions reductions are undertaken, they are insufficient to stop global emissions from continuing to rise until the end of the decade. More ambition is necessary.
JEL classification: Q54, C68, O44, P18
Keywords: Nationally Determined Contributions, climate policy, Computable General Equilibrium, greenhouse gas emissions, climate change, climate finance
Working Paper Number G-358 can be downloaded in PDF format. To print this you will need the Adobe Acrobat Reader.
Go to working papers page