I4CE’s Landscape of Climate Finance: Understanding the Current State of Climate Investments
Climate finance refers to investments made with the objective of supporting climate action and facilitating the transition to a low-carbon economy. I4CE’s assessment of this landscape provides a broad overview of investments made by households, companies, and public authorities. These investments encompass a variety of initiatives, including retrofitting buildings, purchasing electric vehicles, installing renewable energy systems, and enhancing urban public transport infrastructure.
Climate Investments Stall in 2024
In a concerning turn of events, climate investments have hit a plateau. After a period of steady growth from 2021 to 2023, investment in climate initiatives slowed in 2024, amounting to €102 billion—a 5% decline from the previous year. Key areas contributing to this slowdown include energy-efficient construction and building renovations, as well as specific renewable energy sectors like offshore wind power and biomethane injection. Early forecasts suggest that climate investment could stagnate further, predicted to reach around €103 billion in 2025.
The slowdown can largely be attributed to a broader economic downturn, particularly affecting the construction sector, which is grappling with elevated interest rates. Additionally, policy setbacks, such as the relaxation of European emissions targets for vehicles due in 2025, have exacerbated the decline.
The Role of Public Funding
Public funds play a crucial role in climate investment, even though they account for only 16% of total investments. Unfortunately, recent trends show a reduction in public spending on climate action. Government subsidies for energy-efficient renovations, financing for electric vehicles, and investment in public transport infrastructure have all seen cutbacks. This is alarming as public funding is often vital for the economic viability of climate projects and for overcoming financial barriers faced by households and businesses.
In the face of declining public support, the ability for private investments to fill the gap remains uncertain. The reduction in public backing may hinder the progress needed to achieve climate goals, stressing the importance of sustained investment.
Considerable Funding Needs for Future Goals
The urgency of ramping up both public and private investment cannot be overstated if we are to meet greenhouse gas emissions reduction targets. According to the draft scenario of France’s national low-carbon strategy (Stratégie nationale bas-carbone, SNBC), climate investments must surge by €87 billion by 2030 compared to 2024 levels.
The projected funding deficit indicates that without intervention, additional public spending requirements could reach €52 billion in 2030. However, this figure can be lowered by implementing stronger regulations, eliminating certain tax breaks, and refocusing subsidies towards low-income households. Innovative measures, like increasing energy-saving certificates (commonly referred to as white certificates) or utility fees, can also help. While this approach could potentially reduce the additional requirement to €18 billion, it hinges on a greater financial commitment from households and firms, raising concerns about fairness and equity in the transition process.
Reviving Climate Investment Dynamics
In light of these challenges, it is essential for public authorities to recalibrate their financing strategies to reinvigorate climate investments. Various financing tools are available, both budgetary and extra-budgetary. These include white certificates, equity and debt financing from social landlords, and public infrastructure managers, as well as loans and equity investments from public banks.
However, while the potential for renewed investment exists, it is crucial to acknowledge the limitations. Necessary reforms may take years to implement, meaning that regulators and policymakers need to act swiftly on legislative and fiscal measures. Strengthening regulations to counteract any potential rebound in fossil fuel investments is also imperative, emphasizing a proactive rather than reactive stance in climate financing.
By strategically navigating through these challenges, it is possible to foster an environment conducive to climate investment, while also addressing the logistical and financial barriers that households and businesses encounter in their journey toward sustainability.
