New Ideas to Fund our Planet’s Future: Finance-Based Strategies for Curbing Climate Change

At COP28 in Dubai, negotiators once again focus on increasing climate finance as the world struggles to manage rising temperatures, historic natural disasters, and environmental depletion. Panelists explore innovative finance-based solutions to protect and take account of the economic value of natural capital to advance the goals of the Paris agreement and other key international efforts.

GILBERT: Good evening, everyone. Welcome to the Council on Foreign Relations meeting on “New Ideas to Fund Our Planet’s Future: Finance-Based Strategies for Curbing Climate Change.”

I’m Nili Gilbert. I’m the vice chair of Carbon Direct and also the chair of the Advisory Panel for the Glasgow Financial Alliance for Net Zero, or GFANZ. And we’re pleased to be joined today by over 150 CFR members attending both in person here in New York as well as on Zoom.

When it comes to this topic, our meeting is very timely due to the recent conclusion of COP-28, which notably included fossil fuels in the official agreement for the first time. This represented a banner achievement by the UAE COP-28 presidency, which was focused throughout its term on running into hard challenges, and trying to solve them, and delivering a series of firsts.

On fossil fuels specifically, we had a call for countries to commit to transitioning away from fossil fuels in the energy system in a just, orderly, and equitable manner; accelerating action in this critical decade so as to achieve net zero by 2050 in keeping with science; and also, importantly, the commitment included significant goals for 2030, not just 2050—a global pledge to triple renewables, to double energy efficiency, and to accelerate efforts towards a phasedown of unabated coal power. We also saw at least fifty oil and gas companies committing to reach near-zero methane emissions by 2030 and to submit plans to meet those targets within the next two years.

A clear focus on finance brought productive momentum to the events as well, which is what we’re here to discuss today. Finance was recognized as a cross-cutting thematic pillar throughout the entire COP agenda, where it usually always has a single day. And of course, naturally, government commitments to finance, especially those for adaptation and resilience for the most climate-vulnerable countries, were at the top of the agenda. And we saw during COP-28 that a governance process was created for the new loss and damage fund to be able to address the costs of physical risk for these vulnerable countries, and that we—that we saw commitments of over $700 million to that fund during the beginning of the COP process, which raised the spirit of solidarity and opened the way for other breakthroughs in the negotiations later in the process. That said, $700 million, we all know, won’t be nearly enough to be able to meet these needs over time, so those discussions will surely continue.

Beyond the government negotiations, though, the crucial role of the private sector in meeting the climate challenge was, importantly, in central focus. Kristalina Georgieva, the head of the International Monetary Fund, said this very well in one of her remarks, where she forcefully noted that private capital today makes up about 40 percent of private—of climate finance globally, and that private climate finance needs to reach 80 percent for us to get where we need to go on our road to net zero. In order to achieve this vision, of course, private finance will need to see more climate opportunities moving into the investable and bankable window.

At Carbon Direct, we always say that we see three key—three key implementation challenges to be able to meet this need: you have policy changes, you have rising demand from green procurement, and then also you have innovation bringing down costs. And we’re happy to see that all three of these—of these are being met increasingly, and this will continue.

For private finance, another key focus reflected that in addition to moving investments upward in pure green solutions like wind and solar that we now need to be able to go where the emissions are. And in—when we think about this, there were some key commitments in the COP-28 agenda also that resonate.

For example, we saw the launch of the Industrial Transition Accelerator by the UNFCCC, which hosts the COP and the Paris Agreement process, along with the COP-28 presidency. The Industrial Transition Accelerator brings together governments, the private sector, as well as technical experts to be able to move money into industrial decarbonization for hard-to-abate sectors with a specific focus on getting projects to final investment decision in just two years by 2030.

We also saw that the window for moving private capital into climate solutions also expanded to voluntary carbon markets, which we’ll discuss today. This is a critical piece of the pie for moving funding into areas that are particularly difficult to finance and particularly acute. So the COP presidency hosted historic events, roundtables, and sessions focused on advancing integrity in the voluntary carbon markets, which is really the issue that’s been holding back fund flows there.

So, in summary, all of these efforts will continue into the new year and likely well beyond. In the media, you’ve seen the head of U.N. Climate Change, Simon Stiell, widely quoted saying that these COP-28 outcomes signal the beginning of the end for fossil fuels. Well, for me it also felt like an end of the beginning, where the middle stages of our journey towards net zero will herald much broader multilateral action, importantly including the private sector and private finance within that focus. And that is what I’m looking forward to speaking with our panelists about today.

So pleased to welcome to our conversation Jason—Jason Bordoff, the founding director of the Center for Global Energy Policy at Columbia University, where he’s a professor of professional practice and also the co-founding dean of the Columbia Climate School; Paula DiPerna, a special advisor to CDP North America—she’s a pioneer of strategic global environmental and philanthropic policy, and a widely published author and commentary on these issues; and Adam Wolfensohn, the managing partner of Encourage Capital, which works with major asset owners to design impact strategies and deploy capital to solve problems like global ecosystem decline, climate change, and bringing financial services to the world’s poor.

So, Jason, you have also just returned from COP-28. And I’m wondering if you can share, as an expert in the nexus of public policy and climate, a lay of the land for the broader ecosystem of climate finance. What is the world talking about when it comes to financing, especially including the energy transition?

BORDOFF: Yeah. Thanks, Nili. Thanks to CFR for putting this together and for the invitation to be here, to Paul and Adam.

And, yeah, you said I just got back from COP. It feels like a while ago. I got back this week, and was in Houston, and just got off a redeye from San Francisco. So hopefully I’ll try to be a little articulate. (Laughter.)

Nili gave a really great overview of the outcomes of COP—the successes, the agreements. We always say that each COP has to, like, OK, the last one was ambition, and now it’s time to turn ambition into action. The outcomes still are often framed as commitments, right? So we should remember that for all the commitments that she talked about, the fundamental purpose of this COP was the global stocktake, to say we’ve been making commitments for a while and how are we doing on actually executing against those commitments. And the answer is not great. It’s not—the outlook today is better than before, so that’s important to note. If we had gone back to before the Paris Agreement and somebody asked you where we were headed, they might have said three-and-a-half or four degrees Celsius of warming. Today, they might say two-and-a-half to three (degrees). So progress is possible, but it is nowhere close to being targets like net zero by 2050 or one-and-a-half degrees Celsius.

So I hope—I mean, I like to think Simon Stiell is right. I think I would have more confidence that it was the beginning of the end of fossil fuels if we were actually seeing demand fall year after year. It is still rising year after year. That is where we are today, for all the pledges, all the commitments.

So I think the answer to your question of what are people talking about in this space of climate finance is they were talking a lot about it. They’re doing something about it, but certainly not nearly enough.

So, again, really the glass half-full/half-empty story. So half-full, you know, this year spending on clean energy globally will be something like $2 trillion; it will be about twice what we spend globally on fossil fuels. That’s an enormous shift, 2X clean to fossil fuels, $2 trillion globally.

We will spend this year around $250 billion, so just over one-tenth that amount, on clean energy in emerging and developing economies, where the bulk of the investment is needed, the bulk of the emissions growth is going to come from. And to be on track for a target like net zero by 2050, that should be around $1.3 trillion by 2030. So we need to scale the investments and the finance that’s going into clean energy, not to mention adaptation, in emerging and developing economies dramatically, like severalfold, really fast, in the next several years.

Most of that, as Adam, I assume, can talk about, is going to be private capital, not public capital. I mean, the IEA estimates somewhere around two-thirds of that would be private capital. And there—as dramatically as the cost of clean energy has come down—and it has—there are a lot of—a lot more barriers to putting capital to work in those parts of the world: political risk; currency-exchange risk, which is something we’ve been working a lot on at the Center on Global Energy Policy. Cost of capital is just much higher for a variety of reasons.

It's a matter—and this is a really important matter, not just of tackling climate, because when you look at, again, where the energy growth is coming from, where the emissions growth is going to come from, it is going to be a lot in emerging and developing economies. It’s also just a matter of, like, what an equitable and just transition looks like. These are parts of the world that did not cause this problem, right? What matters is cumulative emissions. Forty-five percent of cumulative emissions since the start of the Industrial Revolution are the U.S. and Europe, about 2 or 3 percent the continent of Africa. So did not cause this problem, do not have the resources to cope with the impacts, do not have necessarily the resources to develop in a cleaner way. Wealthy countries haven’t made good on the commitments they have made, nevertheless the scale of what’s needed. And now we’re even talking about, like, climate clubs and tariffs where people are feeling like, wait, you just spent a trillion dollars on the Inflation Reduction Act, which is going to pull investment away from us, and you’re going to impose a tariff if our exports are too carbon-intensive. So there’s a real risk of sort of a backlash from some of the lower-income parts of the world.

So we have to do much more. It was good that we reached agreement on loss and damage, but as you said, $700 million, I mean, Pakistan’s flooding last year was $30 billion in damage in just that one—(laughs)—instance, so it is a drop in the bucket compared to what’s needed.

And then there’s really much more that needs to be done. And we can go into what that would look like—and, obviously, Paula and Adam have great thoughts on that—how to use government policy tools, how to use the balance sheets of the multilateral development institutions, the DFC—the Development Finance Corporation—in the U.S., what government policy can do—because I don’t think it’s government dollars that’s going to finance this, but government dollars can do a lot to de-risk and use balance sheets more effectively for things like the World Bank to de-risk private capital going into emerging and developing economies. I think that has to be, like—has to get even more focus than it did at COP. It did—I was pleased to see it did get focus, but that has to be where we’re focused, our attention now, is figuring out how to drive far more dollars into clean energy in some of the most vulnerable parts of the world.

GILBERT: Thanks, Jason. I really agree with what you’re saying about the focus on capital, not only the top-down goals that we have for driving the net-zero process overall but now really starting to look at country-specific, sector-specific financing needs and strategies; and then, of course, making sure that those bottom-up efforts add back up to the top-down transition pathways that we need to meet at the end of the day.

Paula, you recently wrote a book arguing for the need to rethink how we value natural resources. Would you be willing to share with us some of what you’ve found on the big issues that are holding back this flow of funding to finance climate action?

DIPERNA: Absolutely. And I also want to thank you for presiding and the Council for having the event. And it’s interesting I’m sitting between Jason and Adam—private capital, policy.

So what’s holding us back? I mean, for those of us who are in New York today, it’s a gridlock alert day. And you know, Jason just talked about the contradictions between promises and action, and I think we are at some point of gridlock, actually, notwithstanding the progress.

And what I put my finger on in the book—and this—the book is called Pricing the Priceless. It’s sort of Paula DiPerna meets environmental economics. (Laughter.) It’s a journey, literally, around the world to look at how we value things. And I got onto this, and why I think we’re at gridlock, is because it’s sort of a mental paradox that we’re living. We value Uber in the billions of dollars, and it’s nothing but a software program and other people’s cars. We can value that in the billions of dollars, and the atmosphere we value at zero. And we have to flip this. This cannot—Uber’s worth something, but it can’t be worth more than the atmosphere. (Laughter.) And you know, what’s dispensable—(laughs)—is very valuable, and what’s indispensable seems to be valued less. There’s a paradox there. And it’s almost as simple as accounting.

And one of things that I came to is, you know, nature’s an unpaid worker. And all of our books would look great, every company would look terrific if it wasn’t paying its workers. And we are not paying nature for the services it is providing us for free: clean air, clean water, water filtration, pollination, you name it. And you know, there have been estimates of what this valuation is that have reached as high as 125 trillion (dollars) a year, which was at the time more than the global GDP. The World Economic Forum has just said it’s more like 50 trillion (dollars) a year, which is about half global GDP. But other reports have said there would be no GDP without nature, and that is probably true. And part of why we don’t see this—and back to the book—you know, the dichotomy of—and how this gets to COP-28 and all of these issues of countries not being able to meet the costs of climate change is because they’re providing services for free, and how about if we compensate them for those services rather than lend them money. But we have to kind of start seeing the costs.

And just something that—you know, environmental protection, if you’re a public accountant, you put that on the cost side of the ledger, not on the infrastructure side, not on the asset side. And we have to sort of flip things to start looking at what’s the real cost and what’s the real value, and that nature and forests—and I’ll talk a little bit about this later. Something that Adam pioneered is a new financial instrument that actually does value the priceless nature of a forest as infrastructure.

So I’ll just summarize it. This, I think, is a very clear example. The company Puma—and I’m sure we have Puma products, if not in the—here at 68^th Street, online people must be using Puma. (Laughter.) So the CEO of Puma some years ago, Jochen Zeitz, who is really a visionary, he did his annual P&L for his—for his shareholders, per usual, and reported 202 million euros in net earnings that year, just slightly more than a decade ago. And then he hired a very well-known environmental accounting firm to look at what if they had to pay—what if Puma had to pay nature for the costs or pay some enterprise—a government or a local landowner—for the natural services that were feeding Puma’s economic activities. So what would that be? A real price on carbon, higher price on water, actual cost of disposal, using landfills, land transition from food to fiber, all the inputs that nature provided. That number came to 145 million euro, which was a whopping chunk out of the 202 (million euro).

And so partly, I think, if we started looking for these costs, we would be—have a rude awakening as to how so drastically we’re undervaluing. And if we flip that and start looking at nature as an invaluable asset—the 30 billion (dollars) in flooding in Pakistan, it’s uninsurable. David Howden said that at COP-28, that the losses faced by developing countries are uninsurable. So how are they going to be insurable? Only if we flip value and start to put capital on the priceless aspects of nature to protect them as assets, not just keep them going.

Thank you.

GILBERT: Thank you, Paula. And thank you also for making your book available for the members who are here in person—

DIPERNA: Thank you.

GILBERT: —to find after the end of our session.

DIPERNA: Thank you.

GILBERT: So, Adam, as a pioneer in venture and environmental investing—(laughter)—no pressure—(laughter)—you also have been a leader and innovator in the carbon markets. Can you tell us more about how your sphere is advancing the carbon markets to address decarbonization?

WOLFENSOHN: Sure. Thank you. And again, thanks, all, for being here, and for the Council.

And, yeah, picking up on what Paula said, couldn’t agree more. And I think a lot of what we try to do is put some of that into practice. And of course, without—you know, all of us would love to have government come in and say, you know, this is priced, right? That’s what we’ve been arguing for for a long time. It’s not happening.

Talking about COP, you know, I may be a little more sanguine about the outcomes there. One, to me, sort of unequivocal failure was a failure to really set some ground rules for a global carbon market. So that was a big hope there, Article 6 for the carbon peeps out there. (Laughter.) And that really—you know, and there was no agreement reached.

I think, you know, a silver—not a silver lining, but, like, a consolation prize, I think, was the good work in the voluntary carbon markets and unifying a lot of those standards for the integrity that you were talking about. And so that is a—that is a plus, and I’ll talk for a second about that.

And the other plus, I think, was a real focus on food. So, you know, the fossil fuel statement has gotten a lot of press, and you know, I think it’s, you know, good on the margins. But we’ve all been focused on fossil fuels for a while, right? It wasn’t sort of news. Whereas I do think that food was elevated at this COP in a way that—it’s about one-third of global emissions, right, through the global food system, and there’s a real potential to turn that over time into a sink. And that, again, is not possible without ideas in innovative finance, and without actually pricing that, without actually pricing that carbon benefit and the broader ecosystem benefits. But that transition is possible.

And carbon markets is a great example of a tool. And one thing that—you know, we’re kind of going down to the granular. And so, you know, how does all this work in practice, right? And I think that people like us, and also Carbon Direct and others, I think are broadly financing through the private sector in the absence of a global carbon market of any sort of—there are a bunch of regional carbon markets or compliance markets. But to oversimplify for a moment, you know, in the—in the voluntary carbon market, you’ve got corporates saying: Yes, I will be net zero. I have a demand, and I want to do everything I can as a corporate to reduce my emissions, but I still am going to have residual emissions that I need to offset. And so that’s a demand in the market. And the private sector, people like us and others, have come up to say: OK, great. We need to generate these offsets. We need to fund activities that’s ultimately going to sequester carbon, whether, you know, mechanically or by an avoidance of fossil fuels. But for me, a great patch of it is through financing nature because, as Paula said, how else are you going to do that, right? And that’s—that, to me, is a real defense. And the carbon markets have been, you know, under some attack; is it just a dodge for, you know, corporates not to fulfill their commitments? Whereas, you know, looking at it from the other side, it’s like, is there a better way to actually value the priceless, to actually put a price on these activities and to fund activities?

So if you’re—you know, we’re doing projects with smallholder farmers, as an example, right, where they really want to transition to agroforestry—higher yield, better resilience, sequestering carbon above and below ground, IMS, all this stuff that costs money to do that they don’t have, and that just based on the yield improvements is not really financeable. But if you factor in the carbon that it is saving and then also the other ecosystem services that are even tougher to price, then these are great investments, right? And so it’s just about, you know, finding a willing buyer. In the absence of the government saying this is what is costs, you find a willing buyer in the private sector and you kind of make it work. And that’s sort of how this whole ecosystem of environmental finance has sprung up in that regard, from the bottom up.

And so I’m a big—you know, I’m a climate advocate at heart. I am a big advocate for carbon markets, for example, and things that Paula said.

GILBERT: Food and agriculture also for the first time in the official statement.

WOLFENSOHN: Yeah.

GILBERT: So that’s a big deal. We expect to see that continue. Huge focus for the Brazilian presidency, which will host COP-30, as well.

Adam, as we think about innovative strategies to fund climate solutions, blended finance is also a key area of focus. Can you share with us a little bit, briefly, about what that looks like in practice?

WOLFENSOHN: Yeah. And of course, all these—I know we want to get to questions. Some of it is quickly.

But you know, broadly, blended finance is a capital stack, you know, money that is—you’ve got some commercial investment capital, and then below that some kinds of guarantees, non-fully-return-seeking capital that’s there because they’re trying to achieve some social or environmental benefit.

Now, why are we talking about it today? Because I do think that you read things like, or I read things like, you know, $5 trillion a year we need for—you know, to reach the climate and biodiversity goals by 2030, 2 trillion (dollars) in emerging markets, right—give or take a trillion here, right? (Laughter.) But, like, huge sums of money that really are impossible. Like, what do you do with that, right? Like, nobody—right? It’s kind of useless to think about where is—what blended finance allows you to do is kind of act as trim tabs, right? So if you—a lot of capital—and you know, no offense to—you know, is kind of dumb, right? It just flows where it needs to flow. And there are rules—it’s not that the people behind it are dumb, but just—(laughter)—the more capital there is, the—you know, the less you can actually do to change it. It flows by rules. It’s like—I always think of it as a river, you know? It’s going to find the lowest point. And what blended finance allows you to do is, with smaller amounts of capital, actually tilt these massive flows so you don’t need to manage a trillion dollars in order to actually guide that trillion dollars. You’ve got to strategically place, you know, capital that is able to change a landscape, right, so the water flows where you want it to flow. Because, as Jason said, if you’ve got—you know, we’ve had ever-increasing investment in renewables, but also ever-increasing emissions from fossil fuels. So if you’re not diverting those flows to where it needs to go, away from the bad stuff—and that’s what blended finance allows you to do, using small amounts of money to guide larger amounts of money, simply.

But let’s—(laughter)—let’s turn it back to you so we can move it on and get to questions.

GILBERT: Thank you.

Paula, also briefly as you can as we look forward to questions from the audience, wondering if there are other promising innovative financial tools that you’re thinking about in your research.

DIPERNA: Well, I’ll pick right up on what Adam said because he was also one of the founding—his organization was a founder of something called the Forest Resilience Bond, which I’ve been talking about extensively and is in the book. And they just paid their investors off this week.

So what is that, the Forest Resilience Bond? Four graduate students from the Berkeley School of Business—at the Haas Berkeley School—in Haas Business School at Berkeley concocted this. And one of them confessed that they never intended to do it; they just intended to have it be a graduate paper. But then somebody said: What a great idea. Now you have to do it. So they did.

And what is it? So Forest Resilience Bond, “resilience” is the priceless asset. Now, who benefits from the resilience of a forest? If you look at the forest as infrastructure and you see resilience as what it delivers, OK, who are the beneficiaries? Well, the obvious beneficiaries are the people whose houses don’t burn and the buildings that don’t burn, so the value of those houses at least is one value. But who else benefits? So the Forest Resilience Bond actually functioned as a convener, brought together all kinds of beneficiaries you wouldn’t think of like the local hydropower company. What did—how did they benefit from a resilient forest? More water in the water table. Insurance companies, how do they benefit? Less claims if there’s a forest fire. And of course, California very, very vulnerable to wildfire. So the whole idea of this FRB piloted in Lake Tahoe was to try to build more resilience to resist wildfire.

How do you build resilience? You take care of the forest. You tend it. You need to spend money, put people in the forest, clean up this, take the brush out; expensive. California didn’t have enough money for that because they were putting a lot of money into putting out fires, so this vicious cycle. So in comes the FRB, raises private capital, blended—2 million (dollars) from concessionary lenders, foundations; 2 million (dollars) from the market, not concessionary, return expected—and that capital turned into money that was then spent by the California Wildlife Service to prevent wildfire. So the resilience, which is a long-term benefit you may not see for ten years, is being paid for upfront. Big innovation.

And so the beneficiaries contracted to pay back the donors, the lenders, on a contractual basis based on their expected benefits, which can be calculated. And so they’ve just paid back the first 4 million (dollars) this week, which is great news. They’ve raised enough to develop a second fund, another 25 million (dollars), another bond, for a larger area; a $25 million innovation fund to collect new ideas; and a portfolio—which is exactly the way you would manage infrastructure funding—a portfolio of smaller projects to be aggregated and funded in the same way. No reason you couldn’t have an FRB all around Canada and every state of the union—in Maine, in Portugal.

And in fact—I’ll just finish with this, which is a miracle—we are going—they are going to be working with the government of Portugal. And I’m happy to say that the U.S. embassy sponsored a talk that I gave in Lisbon, and in the room were the right people, and now they’re talking to each other about an FRB in Portugal. So from 2016—today is 2023—takes at least ten years for a new idea to become mainstream.

GILBERT: Thank you, Paula.

We talk a lot about innovation when it comes to climate, and I think people usually think of technology in that context. But these examples remind us that innovation can extend to finance and to other critical sectors needed to resolve this problem. Jason, we can—we talk a lot and we have—we will talk a lot about finance, but it’s important to remember that we will not be able to get where we need to go without policy. And policymakers are increasingly focusing on climate, but they have a host of other topics, right, this polycrisis that they’re—that they’re also trying to address, which includes but is not limited to climate. So I wanted to ask you how you see policymakers approaching this problem in a way that is manageable but also impactful.

BORDOFF: I guess it depends which policymakers we’re talking about. So when we think about the amount of capital that needs to go into, say, emerging and developing economies, whether it’s for investments in adaptation to make infrastructure more resilient in low-lying island Pacific nations or to develop critical mineral and metal resources that we’re going to need for the transition in Africa or Latin America, China’s doing a pretty good job of putting capital to work and investing in those things. And I think it’s important to talk about that at the Council on Foreign Relations, because that is clearly for geostrategic reasons—(laughs)—as much as for climate reasons.

The toolkit that, frankly, the West has to work with is more limited. I mean, I think we saw that with what the United States was able to commit to the loss and damage fund. The idea of really—you know, the Inflation Reduction Act, again, was historic, and by driving down the cost of clean energy can have impacts in making it more affordable for the rest of the world. You hear that from the administration. But it is directly focused on 12, 13 percent of the world’s emissions. And the question is, what does it look like to use all the tools of international economics and foreign policy and international trade and commerce to mobilize more capital for the parts of the world that need it the most? And our political system—(laughs)—is such that, quite frankly, the toolkit is limited. That’s not to say nothing is being done. If you look at what the Development Finance Corporation is doing, if you look at what the multilateral development banks are doing, you can point to examples—(background noise)—oops—of—you can point to examples of providing political risk insurance or, you know, de-risking investment by purchasing equity tranches, or I think IFC—first-loss guarantees. There’s a number of things that you see some of them doing. It’s just not enough sort of arsenal in the toolkit, I think, for the scale of what’s needed.

And I’ll just say, again—sort of because we are at the Council on Foreign Relations, and because I think my intellectual collaborator and co-author, Meghan O’Sullivan, a board member here, may be watching, she told me—(laughter)—anything I might have interesting to say has been developed in intellectual collaboration with her. You know, we’ve done a lot of work trying to think about the intersection of geopolitics and national security with all the topics we’re talking about here. So the idea of how you’re going to address these issues in some of the lower-income parts of the world, where that capital’s going to come from, all of this takes place—this whole conversation today—again, is important to sort of point out I think at CFR in particular—against a very complex, evolving, dynamic geopolitical landscape of great-power competition and rivalry, of economic fragmentation and protectionism, a rise of industrial policy, a growing backlash and sense of resentment from the developing world toward how they see this transition unfolding in wealthier countries—that we’re reluctant to make investments in certain, say, you know, fossil fuel projects there, but as soon as there’s a problem in Europe people rush to build more LNG projects in Europe or Biden promises to send more LNG.

There was—Michael Tusiani is here. Nobody knows more about LNG than he does. There was a really interesting deep dive in Bloomberg today about how some of the trading firms responded to the spike in prices in a way that—you know, what played out in that crisis was Europe needed to get gas from somewhere else, other than Russia. The price of LNG skyrocketed in response. LNG that would have gone to Asia went to there instead. The price of coal went up. Asia paid more for coal. And if you were in Pakistan or Bangladesh or places like that, you were just left out in the cold. So the energy crisis has been quite devastating. As hard as it’s been for Europe, at least they can afford a trillion euros to subsidize energy. It’s been really devastating. And it has fueled this sense of resentment in whether this is playing out in a sort of just and equitable way, and I fear that that could get worse before it gets better. So the loss and damage conversation didn’t fall apart the way some feared it might have, but there’s so much more work to do.

So I just think it’s important to sort of think about this whole conversation because one of the things that can mobilize—if you think about what would it take to get our political system in the U.S. to agree to put more dollars to work on some of these challenges like critical minerals supply chains, or adaptation, or something else in Africa, or—it maybe challenging, unfortunately, because I care a lot about climate, if all you’re thinking about is climate. If you’re thinking about competition with China, and you’re thinking about America’s economic competitiveness, and you’re thinking about national security, there’s a good reason to put a lot more of our federal dollars and effort to work to try to make some of those things happen. And I hope that by raising the kind of things CFR has the expertise in, in addition to the urgency of climate, we actually might build a broader consensus for the kind of steps that need to be taken.

GILBERT: Thank you.

So now I’d like to open the conversation by inviting our members, both here in person and on Zoom, to join with their questions. And a reminder as we do that that this meeting is on the record.

We’ll start with a question from here in New York. Yes, please. We have a microphone coming to you.

Q: Thank you again for being here. Joseph Gasparro, Royal Bank of Canada.

Jason, you’ve now been at Columbia about a decade, ten years.

BORDOFF: Ten right here.

Q: Ten years, a decade.

BORDOFF: Ten right here.

Q: As you think about over the past decade, you know, students are potentially the ones who are going to help with this, you know, innovative financing and innovative tools. You know, what have you seen, really, over the past decade in terms of now there’s more funding for climate change, but as you wrote, you know, very, you know, magically in your, you know, ’22 piece for Meghan, the geopolitics are now at an all-time high at the same time that capital is at an all-time high for climate change? So I would love to just get your take on what’s the sentiment, what’s the pulse for students, who potentially are the ones who are going to, you know, help us here. Thank you.

BORDOFF: Well, thanks for the question and for having read the piece we did in Foreign Affairs. I’m tempted to ask you to pass the microphone behind you to Caroline (sp) and Lily (sp), who worked with me, and one was a student at SIPA, one was a student somewhere else, and just joined to work with me at the Center on Global Energy Policy.

It sounds corny to say it, but it is a thousand percent true that when I say half-full/half-empty, it’s easy to look at the scale of the challenge. How do we mobilize, you know, this—we shut down the global economy because of a pandemic and emissions fell that year 5 percent. We need them to fall more than that amount every year from now on through 2030. I mean, you just—you just—you look at it and you’re like, OK, now I’m a pessimist. What keeps you optimistic? It’s working on a university campus—(laughs)—with brilliant young people like Caroline (sp) and Lily (sp) who are so committed, so passionate about this issue, and so committed to making faster progress and to changing it.

And so, as I said, like, I think it’s easy to see the glass half-empty sometimes. But is also the case we—in 2020, one out of every twenty cars sold in the world was electric. This year, it will be one in five. In the next five years, we’re on track to build as much renewables as we did in the last twenty. We had a commitment to triple renewables, and everyone’s like, that’s really hard. The baseline is doubling renewables now by 2030. That was nowhere near—that was—you would have been, like, there’s no way we can do that, ten years ago. So everything, like, ten years ago we thought was not possible, turns out, like, we’ve been able to do a lot more of it than we think. It is just, like, the speed and scale of this transition to take targets like 1.5 seriously, the remaining carbon budget just requires a level of transition that is unprecedented by the standards of energy transitions. It takes sixty, seventy, eighty years, Vaclav Smil tells us, for energy—you know, we don’t do this in a quarter-century. It is just—we’ve never done anything like that before. So it is easy to be daunted by the scale of it, but you feel optimistic when you sort of look at what progress can be made. And then the students are just extraordinary.

GILBERT: We have to hope that the pickup that we’re seeing is pointing to exponential growth. It’s the only way that we get there, not just for 2050 but in this decade.

Looking for the next question in our audience here, please. A microphone is coming to you, sir.

Q: Hi. I’m Craig Charney of Charney Research. We do work on global governance, including climate.

I was thinking of the question of voluntary markets. It seems to me unlikely that that will produce results at a specific—at a large enough scale. Is there any real alternative if we’re talking that to about national governments imposing carbon prices and then carbon tariffs on goods from other countries that don’t do the same?

WOLFENSOHN: I mean, it’s a good question. I’ll weigh in on that.

I mean, look, there are levelheaded projections of voluntary carbon markets scaling. There are, like, a billion dollars, give or take, this year, you know, scaling to 250 billion (dollars), says McKinsey and Barclays, and you know, one-and-a-half by 2030 or 1 ½ trillion by 2050. I’m not sure I buy those projections, to be honest, you know, but I think that it’s plausible. It’s a non-zero—(laughs)—probability, right?

I don’t think it’s the best way. You know, if I were king for a day, I would absolutely have, you know, globally coherent pricing policy rules. I don’t think we need to have a single global carbon market. I think there is benefit in having a kind of heterogeneous, locally specific, locally grounded markets. But they’ve got to sync up together in a global regime, or else, you know, a whole bunch of double counting and bad accounting things happen, right? And it all falls apart. So you do need the negotiations that fall apart, or conflict, those are important. And without that, there’s no way that we get to the aspirational numbers of a voluntary carbon market.

I think whether it ultimately is, you know, voluntary, but therefore—you know, voluntary globally, but imposed by local compliance markets, or imposed by, you know, a kind of cultural—right now, it’s sort of, like, a cultural cost of doing business, social license, you know, net zero commitments. You know, I don’t know. All of the above, right? It is a critical tool. And by no means do I say we’ve got the VCM and therefore we should stop on this other stuff. No. I think it’s a really critical tool. It’s a critically flexible tool that also allows for innovation and bringing in other things like diversity and other kinds of ecosystem services. So there’s a lot to be said for it. But I do not think it’s a panacea, I agree.

DIPERNA: The only thing I would throw in there is, apart from exactly what Adam said, I mean, I do think we need an integrated carbon market and an integrated carbon price. I think if I were governor of New York or governor of California, I’d be sitting in this room handshaking to link that regional market in the northeast with the one in California. There’s no real a priori reason why that’s not happening, except politics complications. But even so, for example, back to pricing the priceless, compensation. Take the Congo Basin. Would we have a carbon price sufficient to compensate them for not cutting down the trees?

And we could use the carbon price in a different way other than just the VCM. Two, we can draw on the pre-existing EU ETS price, which is a compliance price, and say yes to people in the Congo, or the Amazon, or anywhere—or anywhere people are foregoing economic development in the name of environmental benefit. We can use the carbon price to compensate them in some way directly so they’re not borrowing, so they’re actually being paid. And that would also fortify the use of price.

BORDOFF: I just think you would lose the political consensus for a carbon price if that’s where the revenue went, right? That’s the challenge.

DIPERNA: Well, then you figure out where the revenue goes. But, you know, that’s, again, local policy.

WOLFENSOHN: But it’s working out—like climate—like I’m always struck in these conversations. When you talk to someone from an emerging market, climate finance is, yes, payments for me to do things. Like, you know, do solar instead of coal, or protect my forests. And if you look to—talk to someone from, you know, the developed world, climate finance is BlackRock, you know? (Laughs.) And so that’s a part of this, right? So there’s a way to bridge that gap.

DIPERNA: Yeah, I think so.

GILBERT: I think I also heard in your question a wondering about a global price on carbon. Yeah, from where we sit here in the U.S., it’s hard even to imagine getting a national price on carbon and a carbon tax. And yet, we have regional regimes. And so what Adam is pointing to, which is finding a way to decrease the fragmentation in these local, national, and regional markets, so that they create kind of a more coherent ecosystem, seems like the most likely direction of travel in the near term. And that in itself has proven difficult to date.

WOLFENSOHN: And I think the carbon tariff question is really interesting, because it’s sort of—a starting point would be sort of leveling the playing field, right? You impose a carbon tax like in the European Union, you impose a carbon price on your heavy industry. And they’re like, well, we have to be on a level playing field. We can’t compete against imports that don’t pay that carbon price. So then you apply the price to imports and presumably might refund it for exports. But then it goes steps further when we talk about climate clubs and things like that, where now carbon tariffs can be considered more coercive tools to try to push other countries to do more faster. If you want access to our markets, we’re going—and there there’s potential power in what that can do to encourage other countries to decarbonize faster.

It’s also easy to see where that—to the point I made a moment ago—sort of runs the risk of feeding growing forces of protectionism around the world. And we’re going to need a lot more, not less, trade in clean energy components and technologies and products to make sure that we can do this transition as affordably as we need to. If we throw up tariffs on clean energy and try to make sure that everything is made here at home, in whatever country you’re in, it just drives up the cost of the transition. And that can slow it down. So it can be a powerful tool, but is a double-edged sword potentially, that you have to use carefully, I think.

GILBERT: So we’re now going to go to a question from a member who is online, and then to David Kirkpatrick who is here in New York.

OPERATOR: We’ll take our next question from Tony Pan.

Q: Hi. Thanks for the insights. This is Tony from Modern Hydrogen.

And I’m curious, it looks like with the debt burdens around the world higher interest rates might be here to stay for decades. What does that do to climate finance?

BORDOFF: You want to comment on that, Adam? I can see you grinning. (Laughs.)

WOLFENSOHN: Yeah, great question. I mean, look, cost of—you know, cost of fuel is your biggest cost in a fossil plant. And cost of capital is your biggest cost in a renewable plant. And that’s just gone way up, right, with the rise of interest rates. Came down today, so, right? (Laughs.) But, no, it is a—it’s a huge issue. And then as you go into emerging markets, where the risk premia get higher, it gets incrementally harder. And so there have been a lot of, you know, tactics around—you know, interest rates buy downs for these projects, and so forth. But it’s a major challenge. And that, I think, has not been focused on enough.

That said, you know, if you look at, you know, the Bloomberg again today came out with another one of their levelized cost of energy analyses, right, which incorporates the interest rate risk—sorry, not risk—the interest rate cost, the cost of capital, into their analysis. And the ever-decreasing cost of the gear that it takes to make renewables, and there was a bump in inflation but a lot of that is through and we’re now down to all-time lows again in solar panels, in batteries, et cetera. Such that it is offsetting some the added cost of the interest rate costs.

And so, you know, by and large, we are continuing to be more and more competitive against fossil fuels. But it is—if they—you know, inflation could take another turn, right? And we are very, very vulnerable in the renewable space to that. You’ve seen that. I’m sure you all saw the article about offshore wind getting canceled around here. You know, there’s a of panoply of reasons why that happened, but it is a major Achilles heel of clean energy. Because it is our biggest cost—upfront capital cost, yeah, and the interest rate too.

GILBERT: Thank you.

David Kirkpatrick next, please.

Q: Thank you. Yeah. David Kirkpatrick. I’m a tech and climate journalist.

One thing that really just sings out is we need more U.S. government commitment to climate finance. I mean, it’s sort of implied in everything you’ve said. The only idea we’ve kind of heard is get people more scared of China maybe we could do it. (Laughter.) And that’s good. I liked that. But what’s really interesting to me is that there is almost no constituency, from a lobbying point of view, that’s been pushing for this. I don’t think there has essentially been any lobbying on this, until—it may be just starting. And what’s the prospect that maybe Congress and the U.S. government, at the macro level, could start to understand the urgency of this issue?

BORDOFF: I mean, look, there’s been a lot—I’ll let you take the harder part. There has been a lot of lobbying on—that gave us the Inflation Reduction Act, right? So for, like, local clean tech for it, it’s easy to go to your congressperson say I want to build a battery factory and, you know, the jobs are created. So it’s easy to lobby for local clean energy production, technology, deployment, et cetera, in the U.S. And I’ve been parts of groups that have done that. And most of my work is in emerging markets.

And I just know and that whenever I’m in a meeting with a staffer or a member of Congress, et cetera, is that everyone’s talking about what we’re going to bring to your district. And then there’s Adam doing all this stuff in India, so we don’t have to talk about that. You know? (Laughs.) It’s just, like, it never comes up. And then—and, to be honest, I’ve never figured out a way to make that happen. And I know that, you know, generally lobbying for development assistance, generally lobbying for a counter-isolationist view, is a difficult, you know, sell in Congress. Do you have a more positive view on that?

WOLFENSOHN: It’s hard to have, David. I mean, it’s a good question. And I think it’s the right question. And I talk to people a lot in D.C. and large environmental groups. I mean, the question that always comes up is, you know, what’s next after the IRA? It was a historic achievement. And something like that happens once every decade, or something. And obviously we have to implement it, and permitting reform, and get the regulations from Treasury. That’s not easy. But what do we start working on now to build consensus, building a movement, build support? And what’s the—when there’s a moment where the stars align to do something else big, what should it be? And I think it’s this. (Laughs.) It is how we get federal policy mobilized in a much more serious way about finance in the transition in particularly the emerging and developing economies.

And I have some thoughts about what that would look like. I think the political—I mean, look, we can’t fund Ukraine. We can barely keep our government open. (Laughter.) So it’s easy to be pessimistic about the prospects that things are going to come together now to do that. And I do think that, as Megan and I have written about, I do worry that there are different ways in which this transition unfolds where increasingly people are sort of looking out for themselves. There’s a risk of doing that.

I do think—to the point about, like, what tipping points we might see that could change things, or cause for optimism, or young people we talked about earlier. I read earlier this year a great book, which I would recommend. It’s the end of the year, people are looking for book recommendations. Douglas Brinkley, the American historian, wrote this great history of the American modern environmental movement through the ’40s, ’50s, ’60s. And you can really see how it progressed in a nonlinear way. You think of, like, Rachel Carson and Silent Spring as this seminal moment with DDT.

But we kept using DDT at the same level for, like, ten, fifteen more years until it kind of all came to a head in the late ’60s, and ultimately, the first Earth Day in 1970, where, you know, one out of every ten Americans came into the streets, and said—Republican, Democrats, suburban, urban—and just said: We can’t live like this anymore. We can’t have air we can’t breathe and water we can’t drink. You have to do something about this. And that’s why even, you know, the Nixon administration created the EPA and the Clean Water Act, all the major environmental laws that we still depend on today.

So social mobilization moves in a nonlinear fashion. And that that has to be coming for climate change, right? The American economist Herbert Stein famously said, Stein’s law, if something cannot go on forever it will stop. That has to be true for climate. And the problem is, it’s a lot harder to clean up the damage done in the past than it is if you pollute the Hudson River. And but that that’s coming, I just don’t know exactly how and when, and the timeframe. And it’ll look different in different parts of the world, particularly parts of the world that struggle with basic energy needs, for sure.

But as that comes, it is going to increase—I say this to companies. I think it’s true for policymakers too. People need to prepare for a world where the kind of pressure on them and the sense of urgency broadly to tackle this problem with greater seriousness kind of proceeds in step changes. And people will have to react to that. And I think part of that will be about the rest of the world. But I do—and my point before, like, the geostrategic considerations can play a big part in that.

But as we go down that road of, like, we can create jobs here at home and all that, there is also the rest—even think about the decline in fossil fuels. If we started, which we’re not seeing yet, to actually see the beginning of the end of fossil fuels, imagined demand starts declining. And what supply falls off the stack first? You might say, well, just whatever’s highest cost. So what if we’re in a world where, you know, you’re in a country, like—it’s not really true in the US, but let’s—because shale is reasonably competitive. But let’s imagine a world where oil demand is falling and production in the U.S. is falling because it can’t compete in a world of declining demand.

People in Texas and Alaska are losing their jobs. The economy is struggling. And production in Saudi is the same and our imports from Saudi are the same. There’s no way our political system allows that to happen. The pressure to sort of, like, look out for yourself as this transition unfolds, and that’s going to be true in the Global South, that’s going to be true in developing countries. Let’s say if there’s some carbon budget left, maybe we get to develop our oil and gas resources. Why does Norway and Texas get to keep doing it? If there’s clean energy jobs to be created, we want them to be created here at home.

I do sort of worry that as this unfolds, if we’re not really careful and we don’t have a lot of global coordination and good policy, there’s a risk that this becomes sources of friction. And that’s just—as Megan and I have written—that’s a risk that will slow down the transition because as soon as people sort of see economic impacts, reliability, energy security impacted—we see this now in the elections in the Netherlands. You see it in Germany, across many countries. Support for climate action wanes when people perceive that the transition is unfolding at a pace that’s sort of not working for them economically.

GILBERT: Or for investors, especially in publicly traded securities. Engagement has always been seen to be one of the critical tools. And usually that engagement was seen as engaging with companies about their own practices. Increasingly, that window is expanding also to look at what companies are doing in their political spending, in their lobbying, and, really importantly, in their trade associations where, you know, we hear from Congress that the pressure from trade associations is neutral from climate—neutral for climate action at best, but mostly negative. And so I think also when we think about how finance engages with this topic, that that frame is changing.

So I’d love to turn to each of you for one last word as we move on. It’s the end of the year. We love to talk about now New Year predictions and lists, as you’ve pointed to, Jason. What would each of you say is an emerging opportunity or challenge that the global community should be prepared for or look out for in the new year? Just briefly, and we’ll close.

BORDOFF: You start, Adam. (Laughter.)

WOLFENSOHN: That’s not fair at all. I’ll go for—I love the tipping—a bit of optimism. So the tipping points that Jason was talking about in terms of social change, you see that in energy systems too. You see it in a negative way in the climate system. You have tipping points we’ve all heard about, Amazon die back, glaciers melting, et cetera. But you can really see that energy systems also can shift nonlinearly. And how can we trigger those so that you have an inevitable deep transformative change that’s irreversible in an energy system, that countervails a lot of the negative and pessimistic and really annoying thoughts that are so right that Jason was talking about. (Laughter.) So it is those concepts of nonlinearities and how do we trigger the good ones that I’m focused on as a point of leverage?

GILBERT: Paula?

DIPERNA: So one thing I’d like to see is a credit card that shows your environmental costs, which is happening. And that’s a great innovation that people are working on. It’s like a P&L for all of us. We owe MasterCard $1,000, but nature 5,000 (dollars). And every time you put your ATM card in the wall and $10 come out, it really is an IOU to nature. It’s not $10. It’s what $10 took from nature. So I think there’s a lot of opportunity for education that could change the dial. I think there’s all these new instruments that are out there.

There’s trillions of dollars in the world sitting around looking for something to do. And the opportunity to capture that and push it towards some of these innovations, some of these requirements, is really there. And so that’s what I hope, is that we can grab that money. And the danger is that we’ll be too late for the immediate, let alone in the long term. The immediate insurable, you can’t get flood insurance in Florida and California. Why aren’t the people who want to buy houses in Florida lining up on that problem? So, you know, we just need to just, I think, dance with the ones who wanted to dance with me and go for the money.

BORDOFF: Yeah. I guess in the next year the trends I see, I think, is—that provided cause for optimism, we’re sort of broadening the constituency base and the group of people having this conversation. So it’s not just, quote, “climate people.” And you saw that, with 8,400 people in Dubai. But I got there, like, before it started. And on the first day, one of the things we did was to elevate—again, relevant for the Council on Foreign Relations—work with the Munich Security Conference to bring national security leaders together to discuss climate. And at Columbia, at the School of International Public Affairs, we have a new Institute of Global Politics led by our dean, Karen Yarhi-Milo, and Secretary Hillary Clinton, who spent a lot of time mapping out how to bring the climate conversation together with the security community. Again, just broadening the constituency.

So whether it’s business, whether it’s food and agriculture, I mean, just, we can’t—we’re not going to get there if the same people keep talking about this. But what I see is a trend where many more communities are being engaged in this conversation. And we need that in government, right? I worked on the staff of the National Security Council. You need to be thinking about issues of climate and integrate them into everything that is being done in foreign policy. If you’re having a conversation about counterterrorism in the Sahel, or national security issues in Nigeria, I mean, climate is sort of relevant in some way to so many of those things. And we need to figure out how to integrate climate much more broadly in our foreign policy. And that’s kind of part of the work that we’re trying to do.

GILBERT: Thank you. Thank you so much to our speakers, Paula DiPerna, Adam Wolfensohn, and Jason Bordoff. Thank you to our members for joining us today. And please do note that the video and transcript of this session will be posted on CFR’s website. Thank you all. (Applause.)

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