UCL researcher writes Financial Times opinion piece about Norway's climate finance

This year, we have seen the cascading impacts from climate change, from wildfires ravaging the US and Mediterranean, to flooding across Europe and Asia. This year will likely be the hottest year on record, a testament to our ongoing failure to tackle climate change.

However, Norway has been presented with a huge opportunity in the profits to its sovereign wealth fund. Due to the soaring profits to fossil fuel producers caused by Russia’s invasion of Ukraine, Norway’s sovereign wealth fund has received around $150bn in profits above prior estimates and predictions.

At the same time, disputes between the global north and the global south over finance continue to present significant barriers to achieving net zero transitions across the world. Emissions growth is now dominated by developing countries due to their development needs, and they require huge levels of international investment in order to transition from fossil-lead development towards clean technologies.

The paradox is that although clean energy technologies are cheaper than fossil fuels, they require substantial up-front investment which is significantly impacted by the cost of capital. These costs are dominated by risks, and the Paris Climate Summit recently pushed forward efforts to underwrite these risks to bring down the cost of capital in these countries.

Norway’s windfall is of comparable scale to the money spent on the Marshall Plan of 1948, which helped stabilise the world’s economic system and laid the foundation for a rapid post-war recovery. Just one third of its profits could underwrite capital markets for low carbon technologies in the developing world, thereby leveraging half of the foreign investment that these countries desperately need.

Norway has a clear chance now to demonstrate its commitment to being a clean energy champion. It’s revenues from the energy crisis mainly came from exporting carbon, so there is a strong argument to be made that Norway should use these funds to offer a beacon of hope in an increasingly desperate global moment. As Michael grubb notes in his Financial Times piece:

“If Norway were to (…) use its finance smartly to leverage private clean energy investment at scale through risk underwriting, it could completely change the game.

Links

• Read the article now.
• Learn more about the Norwegian sovereign wealth fund.
• Learn more about the work of Michael Grubb.

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