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De-risking investments to lower costs One key role for public climate finance is to help de-risk capital investments. While conventional hydrothermal systems are being deployed worldwide, with Iceland and Kenya leading the list of countries where geothermal power already plays a significant role, new technologies like enhanced geothermal systems (EGS), closed-loop systems and superhot geothermal still need to climb the learning curve and slide down the cost curve. Another important role is to de-risk international investments. The vast majority of private capital flows to a handful of middle-income and wealthy economies. In many others — from Small Island Developing States, Sub-Saharan Africa, to parts of Latin America and much of South and Southeast Asia — private investment remains a trickle. The reason is straightforward: capital costs. A solar project in Germany can access financing at 2–3 percent. The same project in Nigeria faces rates of 15 percent or more. The technology is identical. The sun shines brighter in Lagos. But the cost of capital can double or triple the final price of a kilowatt-hour, turning the cheapest energy source on the planet into an unaffordable one. Not as charity, but as leverage This is where public climate finance must play its most critical role — not as charity, but as leverage. Every dollar of concessional public finance, deployed wisely, can de-risk private investment and unlock multiples of itself. The tools exist: guarantees, first-loss tranches, currency-hedging facilities, blended-finance structures. The third and perhaps most important role for public climate finance is to help the most vulnerable to adapt to the climate changes already baked in. The rich will adapt all by themselves. It is the world’s poor who will suffer the most, even though they contributed the least to the problem. The United Nations Environment Programme’s latest Adaptation Gap Report puts developing- country financing needs at well over US$300 billion per year by 2035, higher than the total climate finance pledge at COP29 in Baku. Current international public adaptation flows? Barely over US$25 billion, a twelvefold shortfall. Unlike mitigation investments, which generate returns through cheaper energy, adaptation spending often resembles pure public goods: seawalls, early-warning systems, drought-resistant crops. These are not projects that attract private equity. They require public money. Though here, too, is some hope that small policy levers can have outsize impacts, including in the search for synergies between mitigation and adaptation. Early mitigation yields double dividends in the form of lower mitigation costs later on and vastly lower adaptation costs. Better insulated homes, for example, address both mitigation and adaptation. Insulating homes with low-carbon building materials adds yet another step in the right direction. Public policy and public finance can and must help that process. The sooner the funds flow for both mitigation and adaptation, the lower the total costs for all involved. Once again, it is the cost of capital that poses the biggest hurdle. More efficient homes are cheaper to operate. The challenge is to finance the initial investment.
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