Can a green transition be expected at the desired pace, and, more so, who will pay?
Global financial flows to fossil fuels are substantial: the annual bank investment was $742 billion in 2021, and the total investment was $1.2 trillion. This is more than the investments of $653 billion for climate, estimated for 2020. Much of the capital is moving to oil and gas.
As countries raise their ambitions, these investments could lose value. TA Hansen finds the loss of value, subject to oil price projections, could be $13-17 trillion. This means that the financial and real sectors are at risk, the degree of which would vary as per the pace and nature of the transition.
The distribution of these losses also feeds into climate negotiations.
The US and West Asia stand to lose more if the phase-down were to apply broadly to oil and gas. The former would lose $2-3 trillion, and the latter $4.6 trillion. On the other hand, 81% of the coal assets are in Asia-Pacific and the losses would be $1.77 trillion.
So, can a green transition be expected at the desired pace, and, more so, who will pay?
Much emphasis has been placed on multilateral development banks (MDBs). Demand for reform is cyclical, intensifying during major events. However, not much has changed as voting patterns and shareholder contributions remain skewed.
Yet, developing countries have urged that the capital adequacy framework and contributions be modified to accommodate the need for low-cost financing. The G20 report suggests $260 billion in financing can come through reform. Seemingly, this is an easy ask, but larger issues loom on whether this will become the ceiling to obligatory contributions, and whether the qualitative composition will change.
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