The actual progress of decarbonization is lagging far behind the international (global) and national climate ambitions. However, the GHG emissions are on the rise, accompanied by the increase in “business as usual” investments. The evidence reaffirms that the market is not sufficiently responsive to global challenges. The existing deficiencies of the capital markets functioning such as short-termism persist despite the efforts to address them. The gap between private profitability and the social value of low-carbon investments remains wide. In order to support the climate action and accelerate the pace of a transition to a low-carbon or carbon-neutral global economy and the expand the capacity of the green economy, there is a need to introduce effective fiscal, monetary and financial policies could effectively support the climate action. And our current policy strategies don’t create a game-changing level playing policy field for accelerating green private productive capacity, infrastructure, R&D.
The fiscal policies are central to decarbonization, they affect the business and consumer behavior by revealing (fully or partially) the high societal costs of the unsustainable products and services (IMF,2019). They allow reducing the emissions and environmental damages, generating revenues to support green growth and jobs creation and outreaching the areas which are not (directly) covered by the Paris Agreement such as transportation (shipping and aviation) (OECD, 2018) However, there is a growing consensus that green one-dimensional (СPR,2019) fiscal policies and carbon pricing alone are not sufficient for achieving a clean energy transition, are likely to lead to fragmented and potentially short-sighted decisions that could fail to accomplish an effective, efficient, and fair transition. (GIZ, 2019)
Combined with the monetary, and financial policies, would allow not only
both international policy coordination and domestic policy action are key to addressing climate change. A bottom-up decentralized approach to addressing climate change allows flexibility for individual countries to tailor there needs and priorities. Green fiscal reforms help to reduce our ecological footprint and generate the revenues to create new jobs, mobilize the financial means to deliver global commitments on climate change. There is an increasing consensus that the green fiscal reforms will be politically insufficient to achieve the goals of the Paris Agreement. The green fiscal reforms can deliver significant results
However, climate change poses new and significant risks to financial stability and resilience of the economies.
The emissions from the activities in these areas are growing significantly every year. CO2 emissions in aviation and shipping are growing at a combined rate of 3-5 percent annually and are projected to increase by 50 to 250 percent in the period to 2050. There is a need for a steady drop in emissions from 2020. (UNFCCC, 2016) The countries do cover CO2 emissions from transportation and shipping. According to the last data available 57% of global transportation emissions, the current contributions of the 54 parties. The US makes up 23% of total global transport emissions while the EU and China make up nearly 10% each; together they make nearly half of the world’s transport emissions. Most of the future growth is forecasted in non-OECD countries.
NDCs provide CO2 reduction ambitions, but not yet clear pathways or measures to reach ambitions set by the Paris agreement. Often, measures in the NDCs have desired outcomes and remain vague at the best. In some cases, the mitigation potential of identified “measures” is contestable. ()
Climate change and the financial system have mutual effects and implications in terms of opportunities and risks. Central banks are responsible for the development of the sound financial systems, risk-management practices, the recognition of the full environmental externalities and the risks, implications for financial stability. Environmental degradation combined with climate change creates a serious credit risks. financial risks related to climate need to be priced, better disclosures and adequate risk management tools. and the long term benefits of climate action get reflected in financial risk analysis. However, as the IMF (2019) notes financial risks are often assessed in ways that do not capture climate risks, which are complex, opaque, and have no historical precedents. Third, corporate governance that favors short-term financial performance may amplify financial “short-termism,” while constraints in capital markets can lead to credit rationing for low-carbon projects and the long term benefits of climate action get reflected in financial risk analysis. However, as the IMF (2019) notes financial risks are often assessed in ways that do not capture climate risks, which are complex, opaque, and have no historical precedents. Third, corporate governance that favors short-term financial performance may amplify financial “short-termism,” while constraints in capital markets can lead to credit rationing for low-carbon projects. The market alone cannot correct the existing market failures and the deficiency of the market functions. The world bank based on the studies of the financial policies, divided the polices into 2 wide groups: (1) climate-supportive policies and climate-sensitive policy
The policy tools have proven to be effective to the extent when they applied in a correct manner and correspond to the local circumstances of the political economy, consumption patterns. Climate policy should include a carbon price that maintains a steady background signal for innovation and that generates the revenue needed for an equitable transition and increasingly urgent climate adaptation.
