Here’s Why I’m Optimistic About Climate Financing

(Bloomberg Opinion) — So we’re at the end of another record-breaking year for heat. It became “effectively certain” at the start of December that 2024 is going to be the warmest year on record and more than 1.5C above the pre-industrial baseline, according to the Copernicus Climate Change Service, part of the European Union’s Earth observation program.

The Paris Agreement temperature target, which aims to try and limit warming to 1.5C (2.7F) above pre-industrial levels and “well below” 2C, is in serious jeopardy. Though this year’s breach is likely to be temporary, with global temperatures boosted by El Niño, Zeke Hausfather, researcher at nonprofit group Berkeley Earth, told the Guardian that the 1.5C goal is “deader than a doornail.”

That sentiment has been echoed throughout the scientific community, but we have yet to grapple with what that means. As recently as November at COP29, the United Nations climate change conference in Azerbaijan, there were promises and pledges to keep “1.5C within reach.” There’s a myriad of reasons not to move the goalposts, but in 2025, there ought to be a shift in the messaging. Rather than empty words about keeping a number alive, we need realism — yes, we are likely to breach 1.5C, but we can still act to limit warming — followed by action.

And it would be remiss of me not to point out where action is happening. There’s been a host of monumental achievements this year — from the closure of the UK’s last coal-powered electricity plant and the continued rapid growth of renewables to deforestation in the Brazilian Amazon falling to a nine-year low in the 12 months to July. 

Yet at the same time, fossil fuel consumption globally reached a record high in 2024, and the trillions going toward fossil fuel subsidies far outweighs the money being spent on climate change. If there’s a concept that defined 2024 — particularly in COP29 negotiations, where countries hashed out a new finance goal to support developing countries — it’s the “funding gap.”

We see financing shortfalls everywhere, from climate mitigation and adaptation…

…to biodiversity efforts. Meanwhile, private and public funds continue to flow toward activities that have negative impacts on these crises. 

A multitude of stories this year has made it clear that the biodiversity and climate crises are deeply entwined with health, food and water. Whether it’s a decline in bats leading to higher infant mortality, extremely wet weather contributing to higher food inflation (aka sogflation) or the dual water crises (flooding and drought) faced by the UK as green spaces become impermeable surfaces, human well-being relies on us tackling these challenges simultaneously. 

A major report published Dec. 17 by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services underscored that point several times, while highlighting the fact that governments thus far have taken siloed approaches to these problems. Ignoring links leads to unintended consequences such as damaging biodiversity through tree-planting programs. One would hope to see a shift to whole-system thinking in the next year, but capitulations to a backlash against green policies — for example, the EU’s move to modify the protection status of the wolf to give farmers more freedom to shoot them — may make that more difficult.

Money doesn’t often flow toward the biggest problems but the biggest potential returns. A breakdown of investment in climate technology reveals a mismatch between financing allocations and emissions. Most financing goes to the energy and mobility sectors, even though industrials and food producers emit a greater proportion of the world’s emissions.

Market proponents offer up carbon credits as a solution, a nifty way to move money from wealthy nations to poorer, climate-vulnerable regions. These credits often aim to fund projects with lofty sustainable development goals and co-benefits, but stories of dodgy methodologies, human rights abuses and greenwashing have delivered blows to the voluntary carbon market’s reputation. 

This has affected credit issuances and retirements in 2024 — though removals fared relatively better than the more nebulous avoidance category, which makes up the bulk of the market.

Carbon markets may have a slightly better year in 2025, as a widely anticipated agreement on a UN-backed carbon market was finally reached at COP29. Many hope this will boost the quality of and demand for such products, and it provides a path into the market for worthwhile activities that may struggle to find funding elsewhere. But there’s still reason to worry. Analysts at Carbon Market Watch argue that the deal doesn’t go far enough to create a trustworthy, transparent and effective trading system, while climate scientists warned that it could facilitate countries continuing to rely on their natural resources to do the hard work of decarbonizing for them. (Spoiler alert: That won’t stop climate change.)

But while investors, policymakers and scientists alike hash out important arguments about funding the transition to a cleaner global economy, the climate crisis keeps reminding us that not doing anything is also very expensive. As of Nov. 1 this year, the US alone saw 24 climate and weather-related disasters that caused at least $1 billion-worth of damage.

We’re about to enter the second half of a crucial decade for climate action. Headwinds — geopolitical volatility, inequality, far-right populism — are making the job harder, and that may not change much in 2025. But technological advances and economic realities are reasons for optimism: The transition to cleaner sources of energy is well underway and won’t be halted now. Happy new year!  From Bloomberg Opinion:

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lara Williams is a Bloomberg Opinion columnist covering climate change.

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