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(How) can we afford climate mitigation measures?

You will read a short intro text on the costs of climate mitigation vs. the costs of climate inaction.

In most debates about measures to tackle the climate crisis, sooner or later, someone will say something like: “How are we supposed to pay for that? That’s just too expensive.”  

In this step, we’ll address the common misconceptions that underpin this kind of statement and explore what changes to finance could accelerate climate action.

The true costs: Action versus inaction 

The financial cost of not addressing climate change will be far greater than the cost of taking action now (CPI, 2024). Some estimates suggest that unchecked climate change could cost upwards of 2,300 trillion dollars by 2100 (CPI, 2024). For reference, the current global yearly GDP is around 100 trillion dollars (Statista, 2024). We live in a world where money talks. Underestimating the costs has meant that many politicians and economists have also underestimated real-world impacts and risks. This has led to less urgency and less action than is truly warranted (DeSmith, 2024).

It’s important to note that many ‘costs’ are simply unquantifiable. Unchecked climate breakdown would have a massive toll on human and non-human lives, ecosystems and entire communities that could get decimated. But how do we assign a price to human life, suffering, displacement or loss of livelihood? And what about biodiversity loss or species going extinct? Clearly, these are terrible impacts. They are ‘costs’ of inaction – but costs that cannot be fully represented by a monetary value.  

Averting an existential threat doesn’t have to be profitable 

To avert climate breakdown, we need to direct financial resources away from polluting activities and toward emissions reduction measures regardless of the potential for making profit. Just as we fund emergency responses during crises, addressing the climate crisis requires us to act decisively, regardless of the direct financial returns. 

Key financial strategies 

With this principle in mind, let’s explore some key financial strategies that can help accelerate climate action. 

International climate finance and debt cancellation 

A coastal windfarm in a tropical area.

Under the Paris Agreement, wealthier countries are expected to finance the low-carbon transition in the Global South, given the historical and current emissions imbalance. Increasing North-to-South climate finance can help Global South countries shift to low-carbon technologies and protect themselves against climate impacts. Moreover, cancelling the unfair debt that many of these Global South nations owe to countries or institutions of the Global North is crucial. Doing so frees up resources for Global South countries to accelerate climate action and secure their basic needs. 

Stopping fossil fuel subsidies 

A plane being refuelled.

Despite the urgent need to cut emissions, many governments continue to subsidise fossil fuels, giving them an unfair advantage over renewables and undermining the transition to renewables (Coady et al 2017). For example, kerosene for planes is often heavily subsidised, while electricity for trains is heavily taxed, leading to the perverse situation where the most polluting form of transport is all too often the cheapest one (Transport and Environment 2023). Redirecting subsidies to clean energy and low-carbon infrastructure would make green options more competitive and thus accelerate the transition away from fossil fuels.

Credit guidance toward low-carbon sectors 

An offshore windfarm.

Credit guidance involves directing private finance, like bank loans, away from polluting industries and toward sustainable sectors. Governments and central banks can require banks to limit lending to high-carbon industries and instead prioritise loans for low-carbon infrastructure. These measures make it harder for polluting industries to secure financing while incentivising green investments.

Democratising finance and disentangling loans from profit expectations

Workers at a powerplant looking at a computer.

Since private banks prioritise profit in lending, unprofitable but necessary climate projects often struggle to get funding. If banks were publicly or cooperatively owned or democratically controlled, loans could more easily prioritise environmental and social goals over profit, thus channelling funding into essential climate mitigation measures. 

Public spending and ‘green’ taxation

Workers on steps of a government building.

Governments can fund essential climate projects, even those without profit potential, by creating public money. Unlike households, governments that issue their own currency can create money to finance public priorities, provided they manage inflation through measures like targeted taxes on unsustainable activities. The COVID-19 crisis demonstrated that when political will exists, substantial public funding can be mobilised swiftly to address urgent challenges, showing how the same approach could be applied to tackle the climate crisis.  

Using investments to accelerate the green transition

Rental bikes.

Investors can drive climate action by funding projects and companies that prioritise sustainability over profit maximisation, especially not-for-profit forms of business and low-carbon enterprises. By supporting sustainable businesses, investors help accelerate the transition to a low-carbon economy. 

Divestment from fossil fuels

Sign saying "Divest from fossil fuels".

Divestment involves institutions or organisations withdrawing their investments from fossil fuel companies, making it more difficult for these companies to fund new extraction projects. This movement not only reduces available capital for fossil industries but also signals society’s shift toward renewable energy, applying financial pressure to transition away from fossil fuels. 

Share your thoughts

After reviewing these financial strategies, critically respond to the statement from the opinion piece: “There’s no magic money tree. We can only do what we can realistically afford.” How do the ideas above challenge or support this claim? 
 
Share your response and engage with other learners in the Comments section. 
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Climate Action: Tackling the Climate Crisis for a Better World

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