Could climate change spending and innovation be the greatest economic opportunity of our times? Funding of climate change mitigation and adaptation activities could, according to one estimate from the Deloitte Economics Institute, boost the global economy by US$43 trillion in net present value by 2070. The United Nations’ International Labour Organization has found that a transition to a climate-friendly global economy can create a net balance of 26 million jobs worldwide by 2030.

Inaction, on the other hand, could cost the global economy US$178 trillion in net present value by 2070. Life as we know it is at stake.

Of course, investments are needed to fund renewable energy, energy efficiency, green cities, electric vehicles, public transit, net-zero energy buildings and building retrofits, sustainable agriculture, and zero-waste projects. Preventing catastrophic climate change requires trillions of dollars of investments annually. Funding for this amount more than exists but more needs to be redirected towards sustainable climate-friendly activities.

Unfortunately, the think tank Climate Policy Initiative stated in a recent report that ”an increase of at least 590 per cent in annual climate finance is required to meet internationally agreed climate objectives by 2030 and to avoid the most dangerous impacts of climate change.” This is a staggering gap. More public and private finance sector funding is still needed to push forward in fighting climate change.

Public sector finance policies

Governments can and must take action in several ways, according to global thought leaders. There should be a verification that all public spending occurs in ways that align with mitigating and/or adapting to climate change. Fossil fuel subsidies must be eliminated and climate-friendly procurement and tax policies must be put into effect. A sufficient price on climate emissions applicable across all sectors of the economy is necessary. According to one account limiting warming to 1.5°C or less (essential to avoid catastrophic climate change) requires reaching a tax of US$160 per tonne of carbon dioxide by 2030 (or a corresponding strong cap and trade policy – a cap and trade approach is described more below).

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This does not necessarily have to damage the economy. Consider the case of Sweden which has one of the highest carbon tax rates in the world. Its carbon tax, which is currently about US$130 per tonne, has resulted in a pre-pandemic reduction of emissions by 25 per cent since 1995 with its economy expanded by 75 per cent.

The federal government introduced its carbon tax in 2019. Canada’s tax on carbon dioxide is currently $65 per tonne and the federal government plans to increase this by $15 every year until 2030 at which point it will be $170.

Some provinces in Canada, however, introduced carbon pricing systems years before the federal government. For instance, Quebec introduced a carbon tax in 2007 which was followed by a cap and trade system in 2013. This cap and trade system covers about 80 per cent of Quebec’s climate emissions. In a cap and trade system, a government puts a firm limit on the overall level of carbon pollution from industry and reduces that limit year after year to reach a pollution target. Companies can buy and sell allowances that let them emit only a certain amount of emissions. Those who emit more can buy credits from those who emit less. The market establishes the price of these credits. Ontario was part of this cap and trade initiative with Quebec and California in 2018 but then decided to leave the initiative.

Private sector investments and banking

Banks, with their significant global assets (about US$183 trillion in 2021), are powerful actors and must play a strong role in fighting climate change. Some are supporting climate-friendly loans such as for renewable energy and opposing climate emission industries such as coal mines and coal power plants. They can also link executive compensation to performance on climate goals, achieve carbon neutrality for their operations, and work with the public sector to encourage climate-friendly investments.

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At present, almost half of the global banking industry (with over 300 signatory banks) has committed to moving away from activities contributing to climate change as a result of a UN-backed responsible banking initiative.

Canadian banks are pressing for climate-friendly policies. For instance, TD Bank has committed to fund over $100 billion “in low-carbon lending, financing, asset management and other programs by 2030”. Also, TD Bank has committed to net-zero greenhouse gas emissions associated with operations and financing activities by 2050. Other major Canadian banks have also made climate-friendly commitments.

Climate action through capital markets

Capital markets are mighty when it comes to securing funds with the power to direct tens of trillions of dollars into sustainable development practices. This is significantly more than what government assistance offers today. Examples of capital markets include the stock market and the bond market. Consider the case of the global bond market which is over $US100 trillion but has only US$2 trillion invested in green bonds (money that is used for environmentally friendly projects including fighting climate change) as of the third quarter of 2022.

Capital markets have tended to allocate capital to unsustainable causes for two main reasons. First is the lack of environmental costs noted in profit and loss statements due to governments not requiring businesses to pay for these costs. Second is the long-term nature of sustainable actions resulting in investors likely waiting before supporting sustainable companies and thus taking their investments elsewhere.

An example of a push for sustainable markets is the South African Pension Act which requires that investors who manage pension funds consider environmental factors to ensure long-term profitability.

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Taking action

There are several ways that individuals, institutions and businesses can take action to fund the fight against climate change. This might mean buying products that have a reduced toll on the climate, or voting for politicians who look through a climate change lens when making investment and regulatory decisions, or aligning your investments towards stocks and bonds that emphasize climate-friendly policies.

Ramu Narayanan is a journalist who has covered many sustainability-related topics for his local newspaper, YorkRegion.com. He is an active member of multiple environmental groups where he has advocated for the right to a healthy environment in law and has promoted circular economy practices. He holds a master’s degree in Earth and Space Science and he maintains a website on the UN’s Sustainable Development Goals at sdgsrevealed.org.

Featured image credit: Getty Images.

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