Explainer: How Asia can unlock $800 billion of climate financing

Countries in the Asia-Pacific region face a shortfall of at least $800 billion in climate financing. With public finances depleted by the pandemic, policymakers must unlock the vast potential of private capital to join the fight more effectively against global warming.

Doing so will demand a coordinated and multi-faceted approach by actors on all sides, from governments and central banks to financial supervisors and multilateral institutions. Important strategies include phasing out fossil-fuel subsidies, which have reached a record $1.3 trillion. It will also be key to expand carbon pricing, bridge critical data gaps, and promote innovative financing along with public-private partnerships.

Here’s an explainer based on our latest research, which draws on recent chapters of the Global Financial Stability Report on scaling up climate finance and other IMF studies on climate issues:

• Why is climate finance urgent? Progress is too slow. Global temperatures are set to surpass the critical 1.5 degrees Celsius threshold above pre-industrial levels. Efforts to halve 2019 levels of greenhouse gas emissions by 2030 fall alarmingly short, targeting only an 11 percent reduction. Without stronger action, our warming planet imperils homes, health, and food security. Mobilizing more climate finance is vital not only for mitigating emissions but to build adaptive capacity through investments in climate resilient infrastructure. This is especially important for Asia, which is home to several of the largest emitters and a region acutely vulnerable to climate change due to high population density and geography.

• What makes Asia’s role pivotal? The region’s transition to greater sustainability has global implications. Asia contributed about two-thirds of global growth last year, and will again in 2024, but its heavy reliance on burning coal for energy means that it contributes more than half of harmful global greenhouse gas emissions. Asia’s economies recognize how climate hazards directly impact lives and livelihoods, and have made deeper commitments, as their revised Nationally Determined Contributions under the 2015 Paris Agreement show. Asia can aid the climate fight by demonstrating how to balance economic growth and environmental sustainability.