Moody’s Ratings has warned that global climate investment will fall short of the trillions required to achieve net zero by 2050 unless governments can incentivise the private sector to close the gap. “Fiscal strength will weaken materially if governments fill climate investment gaps fully on their own balance sheets,” said the ratings agency in a report on climate funding gaps. In a hypothetical scenario in which governments do not take action to offset the fiscal impact of higher climate investment needs, global government spending would need to increase by around 1.8% of GDP every year until 2030, it noted. Spending requirements would vary significantly across regions but would likely be larger for emerging markets and developing economies (EMDEs). Sharing the investment burden with the private sector could reduce government spending around 0.9% of GDP per annum up to 2030, Moody’s suggested. Climate policies can ensure the private sector shares the burden, it added, noting the scope for carbon pricing to generate government revenue and the reduction of fossil fuel subsidies to free up fiscal capacity. A second report outlined how early climate mitigation investment can ease credit risks. Under existing climate policies, clean energy investments will peak at 1.9% of GDP in 2030 (US$1.9 trillion), up from 1.3% in 2020. However, climate-related economic losses will amount to nearly 14% of GDP globally by 2050, the report warned, and about 30% in Africa and Asia. Increased investment in climate mitigation would partly counterbalance fiscal costs – governments need to plug a mitigation gap of 1.5% of GDP annually by 2030 and 2.4% in EMDEs. This would almost halve global economic losses to 7.1%, Moody’s has projected. EMDEs across Asia are best placed to benefit from an early and coordinated transition, the report added, citing its capacity to manage risks associated with the shift to lower emission technologies.
