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The Power of Green Public Finance

In addition to visionary leadership and a mobilization of businesses, citizens, and civil-society groups, confronting climate change will require massive investments. We cannot count on governments alone to put up the money; rather, we must use public finance to leverage the power of private capital.

LUXEMBOURG – Policymakers and pundits have been wringing their hands over the crises afflicting the European Union, arguing that it is falling behind in confronting major threats to its long-term survival. Yet on the issue of climate change, nothing could be further from the truth. In mid-November, EU member states demonstrated that they can unite behind a shared vision of a low-carbon future. And European institutions are already leading the fight against climate change at the global level. Among these, the European Investment Bank will now be playing an even greater role as an instrument for decarbonizing the economy and limiting global warming to well below 2°C above pre-industrial levels.

Climate change is the top political issue of our time. Scientists estimate that if we remain on our current path, we will experience global warming of 3-4°C by the end of the century, at which point large portions of the planet will be uninhabitable. Coupled with demographic growth, the impact on human welfare and migration flows would be catastrophic. Carbon emissions reached a record high in 2018, indicating that we urgently need to step up our response.

The transition to a low-carbon economy will not be possible without massive investment. But scarce public resources will not be nearly enough to fund them. Instead, we need to leverage public money to mobilize private capital. The new European Commission under President Ursula von der Leyen understands this. In pursuing a European Green Deal, von der Leyen has asked the EIB to become the financial engine of the low-carbon transition.

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