A conversation on investment strategies for the green transition

In late March, the Biden administration announced the $2 trillion American Jobs Plan, with approximately half of the sum dedicated to fighting the climate crisis. While the legislation would mark sea change in federal action to avert climate catastrophe, many have argued that it falls dramatically short of the amount required to usher in a green transformation of our infrastructure and energy systems.

Responding to this large investment gap, a recent Phenomenal World essay by Anusar Farooqui and Tim Sahay proposes a plan for a public ratings agency for green finance, which would “be mandated to assess the economic viability and contribution towards decarbonization of project proposals” and “serve as a public signal for the state, investors, cities, and firms to back, fund, and undertake projects that are both viable and contribute significantly to decarbonization and resilience against climate change.”

A proposal for a public ratings agency for green finance

The Biden administration has committed the United States to cutting its carbon emissions in half by 2030 and achieving net zero emissions by 2050. The International Renewable Energy Agency (IRENA) estimates that the global transition to a low-carbon future will require \$131 trillion in infrastructure investment by 2050. With the US share of global GDP and carbon emissions around 16 percent, a back-of-the-envelope calculation puts its gross financing needs at roughly \$21 trillion—or 100 percent of GDP over the next three decades. In other words: approximately 3.3 percent of GDP per annum in investment has to be financed to achieve Biden’s commitments. But the aggregate climate-related financing promised by the twin bills introduced by Biden is no more than \$100 billion, or 0.5 percent of GDP per year over the next eight years. How is the rest going to be financed?