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Reinventing climate finance

In this paper, the Rocky Mountain Institute argues that a climate finance framework focused on flows is incomplete, as flows alone cannot determine alignment with the long-term goal of limiting the global average temperature increase to well below 2°C above preindustrial levels. Rather, achieving this goal will require a profound transformation of the global economy’s capital stock—the underlying assets that produce the bulk of global greenhouse
gas emissions.

Key points

A climate finance framework that includes increasing clean flows, decreasing dirty flows, accelerating the turnover of dirty assets, and improving the efficiency of capital stock can more effectively drive action toward the ultimate goal of limiting temperature rise to well below 2°C. However, in order to bring this forward in practice, additional work will be required.

First, if an expanded framework is to be integrated into the United Nations Framework Convention on Climate Change (UNFCCC) process or to climate finance tracking more broadly, each of the four levers will require a proper accounting framework. This will necessitate assessing data availability and developing methodologies for each of the relevant sectors.

Second, we must develop additional instruments to accelerate change for each of these levers. Transitioning this theory into practice may be challenging but achieving the emissions reductions needed to avoid the most dangerous effects of climate change will require ambitious approaches and innovative frameworks
capable of not only increasing or restricting incremental finance flows but mobilizing a systemic transformation of the global economy’s capital stock.