Climate Finance for Limiting Emissions and Promoting Green Development: Mechanisms, Regulation and Governance

Abstract

Preventing risks of severe damage from climate change not only requires deep cuts in developed country greenhouse gas emissions, but also enormous amounts of public and private investment to limit emissions while promoting low-carbon growth in developing countries. While attention has focused on emissions limitations commitments and architectures, the crucial issue of what must be done to mobilize and govern the necessary financial resources has received too little consideration. This paper attempts to present a succinct overview of the emerging field of climate finance by defining the legal, political and economic issues and outlining the leading proposals for financial, regulatory, and governance mechanisms to fund climate change mitigation, and low-carbon development. We argue that effective mitigation of climate change will depend on a complex mix of public funds, private investment though carbon markets, and structured incentives that leave room for developing country innovations. This will require sophisticated national and global regulation of cap-and-trade and offset markets, forest and energy policy, international development funding, international trade law, and coordinated tax policy.

Keywords: climate change, climate finance, climate change economics, development, mitigation, adaptation, development assistance, carbon markets, carbon trading, international law, international environmental law

JEL Classification: K32, K33