The “Turn to Green Finance” was the earliest, simplest, and most consistent with the assumptions inter-woven in the first stage of climate action. It arose in the face of disappointment with multilateral legal regimes post-Copenhagen and the austerity programs adopted by advanced and emerging market governments after the financial crisis and its associated recessions. The Turn to Green Finance, despite these twin setbacks, reaffirmed the belief that climate progress could be assumed on a type of autopilot in which falling technology prices, a cyclical (rather than a structural) resumption of economic growth, and efficient private market operations, even in the absence of expected state action, would propel the world on the path to a low-carbon transition. The optimism of Green Finance centered on the perception that falling prices would make it easy to build (only) green.

Green Finance has three central tenets: (1) as long as demand sustains growth and capital markets are efficiently informed and economically motivated, each increment of investment advances transition to a low-carbon system; (2) replacement of higher cost fossil with lower carbon assets yields job growth with only a marginal reliance on taxes and public subsidies, which could sunset as market penetration increased; and (3) financial market regulation and the facilitation of built-to-purpose financial vehicles to reduce organizational inertia might accelerate Green Finance, but neither the limitations of public budgets nor the need for substantial reform of public policy will impede the transition. These revised articles of climate faith are consistent with the ongoing experience in Northern European and North American renewable energy markets with private capital, light doses of carbon prices or public tax incentives, scheduled retirements of aging (and fully amortized) fossil generation, and flexibility services from abundant gas and dispatchable hydro-electricity sources. This evolved version of climate doctrine has been, since the COVID-19 pandemic, reinforced in these same OECD economies under the rationales for increased public debt and infrastructure investment in the Build Back Better and Green New Deal rubrics. Outside of US and European electricity markets, the basic tenets of the Green Finance faith may prove more problematic.

Read the full article about green finance by Alicia Seiger and Thomas Heller at Stanford Social Innovation Review.