Why We Should Pay More Attention to Climate Finance

Climate change is a very serious challenge, and people should pay more attention to the environment. As a reminder, climate change is the long-term progression of patterns in the world’s climate. Unfortunately, these changes are related to human activities, such as the use of certain nonrenewable resources like fossil fuels. Once burned, certain nonrenewable sources help raise the earth’s temperature by increasing greenhouse gases in the atmosphere. Now, let’s learn more about climate finance and its role in the modern world.

People should keep in mind that the term climate finance has both broad as well as narrow uses. In its broad sense, climate finance refers to an enterprise that uses financial institutions or technologies to advance the cause of environmental sustainability, such as developing or deploying renewable energy sources. Its narrow usage refers to the transfer of capital from developed to developing countries in adherence to the recommendations laid out in international agreements.

Interestingly, climate finance is a way for individuals as well as nations to tackle climate change. In the most general sense, it refers to any type of financing used to fight climate change. Financing usually takes place on the municipal, national or international levels. Necessary funds come from various sources-both public and private.

Climate finance and financial institutions

The topic of climate finance is crucial, as countries and many companies understand the importance of climate change. The United Nations Environment Programme (UNEP) released information about global investments in renewable energy technologies. According to UNEP, between 2010 and 2019, global investments in renewable energy technologies surpassed $2.5 trillion.

Hopefully, numerous financial institutions and technologies played an important role in facilitating this shift in global energy infrastructure.

Let’s have a look at several examples to learn more about the situation. Among the cases of how finance plays a role in this process includes the use of:

• Banks as well as other intermediaries to transfer capital overseas
• Financial markets to price energy commodities
• Derivatives markets to hedge as well as exchange risks related to energy prices
• Stock exchanges as well as investment vehicles to facilitate investment in renewable energy companies

Climate finance includes all of these activities, which are likely to accelerate further in the future.

Understanding renewable resources

So, let’s learn more about renewable resources. Basically, a renewable resource, such as solar energy, wind energy, and geothermal pressure, has an endless supply.

Importantly, renewable resources have become the main topic for the environmental movement. Energy obtained from such resources puts much less strain on the limited supply of fossil fuels, which are nonrenewable resources. The main issue with using renewable resources on a large scale is that they are costly, and many are countries can’t afford them.

There is no lack of incentives designed to encourage the use of alternative energy. For instance, energy taxes place a surcharge on fossil fuels. Thanks to such taxes, it is possible to make renewable resources all over the world. Notably, green funds, investment vehicles such as mutual funds support eco-friendly companies by investing in them.

Thanks to various incentives, it is easier to make renewable resources more popular across the world. Based on the information provided by the U.S. Energy Information Administration, renewable energy provided roughly 11.5 quadrillion British thermal units (Btu) three years ago. The amount of energy mentioned above represented 11.5% of the total U.S. energy consumption. As a reminder, the electric power sector consumed around 56% of U.S. renewable energy in 2018. Approximately 17% of total U.S. electricity generation came from renewable energy sources.

State, as well as federal governments, are willing to embrace renewable resources. Officials encouraged more biofuel consumption by imposing requirements and incentives for the use of renewable energy in 2018. The U.S. Energy Information Administration expects that renewable energy consumption will continue to increase through 2050.

Climate finance and developing countries

As stated above, climate finance has a more narrow meaning. In this sense, climate finance relates to how developed countries should support developing countries in their transition toward eco-friendly energy resources. These discussions often raise questions morally ambiguous questions.

So, let’s have a look at an example. A common demand from rich countries is that developing countries should refrain from relying on new coal-fired power plants. However, developing countries like to underline an important fact. It is no secret that developed countries could achieve their current level of development by exploiting non-renewable resources.

Therefore, many people think that rich countries have a moral obligation to help developing countries. They can invest funds in more environmentally friendly energy sources such as wind, solar, and hydroelectric power. Thanks to funds obtained from rich countries, developing countries will be able to complete various eco-friendy projects. Unsurprisingly, this debate becomes increasingly difficult when one seeks to find exactly the definition of a developing nation.

For example, should the U.S. provide funds to China because China’s per capita income is still far below the U.S.? Many people in the U.S. are likely to consider such decisions politically unacceptable. It is not hard to understand them, as China has the second-largest economy in the world. So, it has financial resources to fund various eco-friendly projects.

There are other important factors to consider when it comes to providing financial support. Some believe children’s education should receive funding on the grounds that it would reduce population growth and therefore curb emissions. Nonetheless, some people may wish to provide financial support to more direct and near-term projects associated with climate change. One way to improve the situation is to install solar panels or wind turbines to generate electricity.