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CLIMATE
The future of climate finance The trend is clear. So are the challenges. One key task is to de-risk capital investments to lower costs. This is where public climate finance must play its most critical role — not as charity, but as leverage.
By Gernot Wagner Climate Economist at Columbia Business School, New York, where he is Faculty Director of the Climate Knowledge Initiative
Global climate finance crossed the US$2 trillion mark in 2024 and grew further to over US$2.3 trillion in 2025, despite political headwinds. The driver? Plummeting clean-energy costs that pull investments all but automatically. The latest geopolitical uncertainties help, too. A lot. Renewables and technologies like geothermal power are predictable where oil and gas are not. Solar panels, in particular, have now been the cheapest source of new electricity for years, and they are getting cheaper still. Battery costs have dropped roughly 90 percent in a decade. Electric vehicles are fundamentally better than what came before. There is no turning back from electrifying transport and decarbonizing the power sector. Wind and solar together generated more power than coal worldwide for the first time in 2025. The trend is clear, and both basic physics and scale economics are pushing prices ever further in the right direction. The challenge is clear, too. While oil, coal and gas are commodities where generating more power or heat means purchasing ever more commodities in jittery global markets, solar, batteries and also, for example, geothermal power are technologies. (Yes, many of these technologies require rare earth or so-called ‘critical’ minerals, but the volumes and physical footprint involved are orders of magnitude smaller than those of the fossil fuel economy.) Climate technologies share two core characteristics. For one, they can only get better and cheaper over time. Equally important, they pose an oft-significant upfront financing challenge, while the cost of operating them is often close to zero. That is where public policies and public funds still have a significant role to play.
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