Expert Speak Terra Nova
Published on Nov 11, 2021
To achieve global carbon neutrality, developed nations needs to look beyond domestic green deals and provide Global South with the capital to go green.
A Green New Deal must be global

This piece is part of the essay series, Shaping our green future: Pathways and Policies for a Net-Zero Transformation.

Introduction: ‘Ambition’ vs. Reality

In recent years, climate ambition has increased in many parts of the world. Many emerging and developed economies have either formally or informally revisited the Nationally Determined Contributions (NDCs) they set out following the December 2015 Paris Agreement; by the end of 2020, 75 Parties to the Agreement had published a new or updated NDC. Yet estimates by the United Nations (UN) demonstrate that this is still insufficient. The February 2021 NDC Synthesis Report notes: “While the majority of nations represented increased their individual levels of ambition to reduce emissions, their combined impact puts them on a path to achieve a less than 1 percent reduction by 2030 compared to 2010 levels. The Intergovernmental Panel on Climate Change, by contrast, has indicated that emission reduction ranges to meet the 1.5°C temperature goal should be around 45 per cent lower.”<1>

This deficit in ambitions is a consequence of the basic structure of the Paris Agreement. While a major step forward, it is structured around national rather than global efforts. Climate change, however, is a global problem: Anthropogenic climate change works through emissions that underlie a globalised economy; in the absence of the sort of cataclysmic global event that returns all nations to something approaching autarky, climate change needs a global solution.

The Paris Agreement is not a global solution, since it creates little incentive to ensure that efforts at mitigation of carbon emissions are focused on areas where they will have the most effect. It is difficult to construct a coherent global effort to control carbon emissions out of nationally determined contributions; the effort has organically reinforced a system in which climate change efforts are coordinated by national governments to focus specifically on mitigation and adaptation mechanisms within their own national borders.

This emphasis on domestic efforts has thus created perverse incentives for many governments. If climate ambition has indeed increased on paper, it is partly because across the world, the political class has discovered that increasing domestic spending on programmes that supposedly address climate change can also create “co-benefits” that are politically palatable and can increase their electoral popularity. The motivating political logic of such “green new deals”—as have been announced or are being campaigned for in many geographies—is thus not exclusively, or even primarily, addressing climate change. Rather it is the co-benefits of increased spending—whether in raising investment in the domestic economy from previously anaemic levels, or in the creation of “green jobs”, or the supposed strategic need to dominate the growth sectors of the future. This is the central reason why, in spite of these claims of greater climate ambition, the actual effect on emission reductions of these national efforts is completely insufficient.

The Paris Agreement is not a global solution, since it creates little incentive to ensure that efforts at mitigation of carbon emissions are focused on areas where they will have the most effect.

Domestic green new deals are thus at best only of tangential assistance to the global fight against climate change. It is a new global green deal that is required.

The Failure of Public Green Finance 

Sceptics about multilateral climate action, whether populists or climate-deniers, are right about one fact: Action on curbing emissions just within OECD countries will not be enough. Indeed, further reductions in OECD emissions are necessary to keep global temperature rises under control; but they may not be sufficient. If countries from the global south—whether India, Indonesia, or their peers—proceed on a carbon-intensive development path, they would render climate action by wealthier countries moot.

Yet, from that unarguable fact, the sceptics draw an incorrect conclusion that common global action is impossible or infeasible. This false conclusion has long been the greatest threat to creating a global consensus around stronger climate action. Yet, by defining themselves in opposition to this undoubted threat, the supposed supporters of green multilateralism have created an equivalent threat themselves. By raising domestic ambitions and setting domestic targets that the sceptics oppose, climate-friendly developed polities have failed to consider the need to catalyse and support action in the Global South.

The difference in levels between the support that is required and that which has been delivered is risible. For India alone, meeting just its current Paris Agreement commitments would require US $2.5 trillion in climate finance in the years up to 2030; that would imply a threefold increase in investment flows.

These requirements dwarf any official financial commitments, including from the current United States administration. This is the important context for President Joe Biden’s claim to restore US support for the Green Climate Fund, the official conduit for such support from public money. This additional financing, even if it receives Congressional approval, will amount at best to US $11.4 billion a year for the entire emerging world; actual appropriations in April 2021 included only a US $1.2 billion contribution.

By defining themselves in opposition to this undoubted threat, the supposed supporters of green multilateralism have created an equivalent threat themselves.

Official climate finance is even less impressive when it is laid against the size of overall budgetary demands in developed economies, including for infrastructure bills in the United States and the European Green Deal. If the US can only set aside 0.3 percent of its US $3.5-trillion “Build Back Better” budgetary proposal for global support on climate change, it is hard to escape the conclusion that it is not seriously proposing to regain leadership on climate action.

‘Green New Deals’ and Crowding Out

The problem with domestic-focused green deals is deeper than their short-changing of official climate finance. It is now well understood that such official climate finance paid for directly by western government treasuries—through the Green Climate Fund or other instruments—fail to match up to the scale of investment required. In 2018, the Report of the Global Commission the Economy and Climate concluded that the world would invest US $90 trillion in infrastructure in the years up to 2030. Much of this will come from private capital, not official sources. If Paris Agreement targets are to be met or exceeded, this infrastructure investment must be “greened”; yet developing countries that are forced to invest in infrastructure out of their own resources, and with minimal access to high-quality global pools of finance, will inevitably de-prioritise climate criteria when evaluating these investments. In other words, global capital must be directed towards these investment opportunities in the emerging world.

Deploying global capital to green investments in emerging economies is not only necessary for achieving agreed-upon climate goals, it is also the most efficient use of climate finance. It is easy to understand this intuitively: Were an omnipotent central planner considering the distribution of a limited amount of climate finance across the world, with the objective of maximising the tonnes of greenhouses gases abated per dollar, then the most economically efficient outcome would be to equalise the marginal impact on emissions of every dollar across projects and areas. This is no theoretical problem, but central to the question of how to construct plausible and efficient strategies towards carbon neutrality. Considerable research on carbon abatement curves has demonstrated wide geographical variance in the dollar cost of each ton of carbon abated. Even within the United States, this can vary between US $105 in New Jersey and US $31 in Texas for rooftop solar. Cap-and-trade or carbon pricing systems within economies seek to create similar economic efficiency.

As several essays in this volume make clear, for much of the emerging world, including India, Southeast Asia, and Africa, a low-carbon development path will only be possible if they can find the resources that they need. Global private capital – the mobilised savings of citizens in wealthier countries – is the only possible origin of these resources. If OECD governments are struggling to directly harvest some of these savings and direct them across national borders, then climate action requires the private sector, specifically international finance, to do so in their place. That is the primary climate imperative in 2021.

The problem is that proponents of domestic green deals want, in fact, to do the exact opposite of this imperative. Those savings are to be appropriated under large spending programmes to go to work locally, not globally—creating domestic jobs and infrastructure rather than directly addressing the global problem of climate change. Vast issuances of green bonds by developed-world governments—such as the US $290 billion of European green bonds planned—will mop up the capital available for green projects, crowding out similar projects in developing countries.

These factors have given the clear impression to the developing world that the authors of developed-country “green new deals” are more interested in domestic political and policy ends than in addressing the climate crisis—which is merely being seen as a useful excuse for reshaping the domestic economy.

Considerable research on carbon abatement curves has demonstrated wide geographical variance in the dollar cost of each ton of carbon abated.

Even some developed-world climate activists have noted this slipperiness in policy objectives. Speaking to the United States Congress in 2019, Greta Thunberg warned: “Of course a sustainable transformed world will include lots of new benefits. But you have to understand. This is not primarily an opportunity to create new green jobs, new businesses or green economic growth. This is above all an emergency, and not just any emergency. This is the biggest crisis humanity has ever faced.”

Forcing OECD savings and profits to stay home and be corralled for domestic government spending, instead of putting them to work on greening the growth of the developing world, is unlikely to aid in a global green transition, and is in fact likely to make it more difficult to achieve the ends of the Paris Agreement.

A Green Marshall Plan?

The phrase “a global green new deal” was first used by the United Nations Environment Programme in 2009, when it sought to pressure G20 governments into spending the US $3 trillion-plus of stimulus packages designed in the wake of the global financial crisis on climate-sensitive sectors like sustainable transport and renewable energy. Yet today’s green new deals are substantively different not just in that they are not “global”, as the UNEP desired. They also depart from the original “new deal” concept itself. After the 2008 crisis, just as when Franklin D. Roosevelt first introduced “new deal” spending in the 1930s, there was a large amount of spare capacity in the economy. Government investment could create the conditions to use that capacity, and the hope in 2009 was that that capacity could, at low cost, be directed towards greening the recovery.

The situation in 2021 is very different: Far from there being excess capacity, the global economy is characterised by bottlenecks in supply chains and cascading inflationary pressures. Over the long run, greener trajectories will save money and create new livelihoods and ladders to prosperity for individuals, regions and countries. Unlike in the original “new deal”, however, a global green transition is not simply about putting unused capital to work: It will require claiming and repurposing resources that are already effectively employed in the more carbon-intensive sections of the economy.

In other words, in the short run, it will cost money, it will create some losing sectors and geographies that will require compensation, and it will need to allow these resources to flow more freely across national boundaries. Green new deals may be easy to sell in domestic politics because they are framed as simple “win-wins”. That is obviously deceptive. If there was in fact a simple, universally beneficial solution for climate change, it would already have been implemented.

More than green new deals, what the world needs is a Green Marshall Plan: Just as, after the Second World War, finance and talent were routed towards rebuilding those areas devastated by the conflict, today valuable financial and administrative capacities should be directed towards the geographies and projects that will most effectively lead to a global green transition. The good news is that, if some effort is put into designing and harmonising the relevant financial regulations and structures, this effort will pay for itself. Several essays in this volume engage with what these regulations and structures might look like, and how multilateral diplomacy can help make them happen.

Over the long run, greener trajectories will save money and create new livelihoods and ladders to prosperity for individuals, regions and countries.

There are multiple ways in which developed and developing countries can work together to ensure that capital flows into global green infrastructure are structured more efficiently from the point of view of carbon abatement—while also providing a reasonable return to the owners of capital. One such possibility is the creation of a green project pipeline: pre-approved projects in emerging economies in which geographical risk has been underwritten by public money or grant capital. The effect of reducing the cost of capital just for solar projects in African countries would be considerable. Currently, the cost of capital means that the production of green electricity in Africa is 35-percent lower than it should be according to standard models; managing this risk would allow the continent to reach net zero 10 years faster than it would otherwise. The focus of multilateral climate diplomacy must be on developing and institutionalising mechanisms that would allow private capital to speed up the green transition in capital-starved areas of the world.


The purpose of this essay is not to discourage efforts towards further decarbonisation in the developed world. In fact, such efforts need to be stronger, with legally mandated targets that force a swifter trajectory to net zero in the areas than can afford it. The argument is that efforts in better-off high-emissions economies must take into account the capital requirements of the rest of the world if they are to be considered genuine efforts to push the world as a whole towards net zero. Climate change is a global problem, and global carbon neutrality must be the aim. Domestic green new deals that do not address the costs of carbon abatement in the developing world, or which make those costs higher, cannot be viewed as signs of commitment to combating climate change. They are little more than domestic political bargains with marginal impact on the larger fight.

As it stands, the Paris Agreement is not working and will not work, owing to the perverse incentives it has created for domestic politicians. Its structural focus is misplaced: National targets and national efforts supplemented by ensuring the flow of capital across national boundaries, and support for decarbonisation efforts in the economies that simultaneously are least able to afford it and where high-carbon growth trajectories look most attractive. There can only be one green new deal, and it will have to be global.

Download the PDF of the report here.

<1> United Nations Climate Change, United Nations Framework Convention on Climate Change.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Mihir Swarup Sharma

Mihir Swarup Sharma

Mihir Swarup Sharma is the Director Centre for Economy and Growth Programme at the Observer Research Foundation. He was trained as an economist and political scientist ...

Read More +