Scaling up public climate finance is necessary to ensure a rapid transition to a decarbonized, resilient world. It plays a vital role, especially in areas where private finance is unwilling or not well-suited to meet climate objectives at the speed and scale necessary, such as public services and infrastructure (for example, transportation and energy networks); research, development, demonstration and some commercialization of new low-carbon technologies; and ecosystem protection. Public finance can also mobilize private finance, enabling greater investments in climate solutions. Additionally, public climate finance can be deployed to ensure equitable outcomes and a just transition. Public climate finance is delivered through different channels and actors, most notably development financial institutions (DFIs) — national and multilateral — and state-owned financial institutions.
It is difficult to determine the precise ideal breakdown between public and private finance needed to meet climate goals, given that such a disaggregation depends on the social and political choices made by societies, institutions and governments about the ideal mix of market and state intervention in economies. Historical data from 2012 to 2022 shows a roughly equal split between public and private climate finance, with some estimates suggesting that 55% of climate finance necessary to meet climate, nature and just transition goals in developing countries (excluding China) will need to come from public sources.
In 2023, public climate finance flows amounted to around $650 billion, a 13% percent drop from 2022, due to large-scale fiscal contractions among the world’s governments — and with further declines possible given the recent reduction of foreign aid budgets in several developed countries. This decline needs to be reversed. Public climate finance will need to accelerate more than six times the current trajectory to reach the estimated $3.8 to $5.9 trillion per year target for 2030. Reaching the $4.9 trillion per year midpoint of the target range will require an average increase in investment of about $600 billion per year between 2023 and 2030.