OP-ED
“Climate technologies can only get better and cheaper over time. The task for MDBs and climate finance more broadly is to speed up the all-but-inevitable transition.”
Gernot Wagner
Gernot Wagner, Climate Economist, Columbia Business School
Gernot Wagner is a climate economist at Columbia Business School, New York, where he is Faculty Director of the Climate Knowledge Initiative. He holds degrees from Harvard and Stanford universities and has authored several books, including Climate
Shock and Geoengineering: the Gamble. For more see: gwagner.com
times those returns in northern Africa. The difference is sovereign country risk, real or perceived and overcoming it is a fundamental – and fundamentally unsolved – challenge in development finance. Blended finance means that governments or MDBs take on some of the risk to help channel private investments to where it is most needed. That logic, of course, extends well beyond solar panels, though the history of solar power is instructive here for another reason. Forty years ago, solar power was a hundred times more expensive than it is today. Climate technologies like solar, wind, batteries, electrolyzers and others, by and large, are indeed just that: technologies. They can only get better and cheaper over time. The task for MDBs and climate finance more broadly is to speed up the all-but- inevitable transition. Saudi Arabia, after all, has a net-zero carbon emissions goal of 2060, a mere decade after Europe’s. Saudi Arabia also has ample access to cheap, patient capital to finance the necessary investments. But time – speed – is of the essence. For MDBs to play a lead role means working with governments as well as private funders and to help propagate the kind of ideas, technologies and financing models that we know work. Scale and speed, in the end, is anything but boring.
insurance markets. Homeowners in California and Florida losing their fire and flood insurance is one thing; living in a developing country and never having had any access to insurance in the first place – and therefore being fully exposed to the elements – is quite another. That is where policy should step in and where MDBs can play a crucial role of helping build the kind of institutions that allow for market forces to play a role in guiding society to better outcomes. In part, that means money spent on supporting local governments, for
example to help them set up insurance markets, or to step in as insurer of last resort. In part, it means sharing lessons learned elsewhere to avoid making the same mistakes and to propagate best practices – turning one-off, creative experiments into replicable templates. The second big area for blended finance is helping cut greenhouse-gas pollution in the first place. The need is clear: While foreign private investors might ask for 6 or 8 percent returns for their solar power investments in northern Germany, they require three or more
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