The Great Carbon Arbitrage

Significant economic and social benefits can be reaped by phasing out coal in favor of renewable energy. The IMF estimates a global net gain of around $85 trillion. While challenges such as weak property rights and bargaining issues exist, these large net benefits should drive efforts to secure global climate finance agreements. One promising approach is the emerging market green bond fund, jointly implemented by the International Finance Corporation (IFC) and Amundi.

In this public-private partnership, the IFC provided a first-loss tranche, de-risking the senior tranches enough to secure investment-grade ratings and leverage private investments toward climate-friendly assets. Quantifying and developing further mechanisms, blended finance and others, to capture the benefits of the great carbon arbitrage can allow financing LINGO Incentive Deals (LIDs) among other measures to end coal, oil and gas dependence.

Resources :

•  IMF (2022) The Great Carbon Arbitrage, Working Paper, June 2022