Top Choice for Climate Finance is Carbon Pricing


A recent research paper by Perspectives Climate examines the most effective financial instruments for addressing the inevitable and irreversible consequences of climate change. The study evaluates various options based on four key principles: adequacy, predictability, feasibility, and fairness, as outlined in the Paris climate agreement.

Carbon pricing emerges as the most promising choice, aligning with all four principles, alongside a financial transaction tax. A fossil fuel extraction levy satisfies three principles but falls short on feasibility. In contrast, subsidized insurance fails to meet the adequacy criterion and only partially fulfills the others.

Other instruments scrutinized include catastrophe bonds, international aviation levies, and a global wealth tax, each with their own strengths and weaknesses. A combination of financial instruments is deemed necessary to bridge the loss and damage finance gap. Researchers emphasize the importance of establishing guardrails, including systematic monitoring and accountability measures, to ensure effective fund utilization. The study also discusses the establishment of a loss and damage fund following the UN Cop 27 conference, with ongoing developments expected.