BAKU, Azerbaijan, January 21. The public sector is expected to play a key role in the green transition, Trend reports with reference to the working paper released by the International Monetary Fund (IMF).
“Seizing on the opportunity to support the recovery from the pandemic as well as on the need to strengthen energy security and resilience in response to the economic fallout of the conflict in Ukraine, many countries are increasing public investment in clean energy and infrastructure. In Europe, for example, the majority share of the national Recovery and Resilience Plans, supported by European funds (NextGenerationEU), will be spent to accelerate the green transition,” reads the paper.
IMF analysts believe that the private sector, particularly the financial sector, will have to complement public investments and provide the bulk of the required resources.
“Banks remain the main source of external financing for the European private sector and are playing a key role in green finance by issuing green-linked loans, bonds (whose proceeds are intended to extend loans for green projects), and asset-backed securities resulting from the securitization of green loans. However, according to the findings of the first pilot exercise conducted by the European Banking Authority (2021) to map climate risk in the European Banking sector, only 25 per cent of the total submitted notional exposure covered by the EU taxonomy are identified as green. Moreover, the green asset ratio, that is the primary indicator of greenness proposed by the EBA for the disclosure by banks is estimated at just 7.9 per cent. According to the mapping exercise, more than half of banks’ exposures (58 percent of total non-SME corporate exposures to EU obligors) are allocated to sectors that might be sensitive to transition risks. These findings clearly show that greening banks’ balance sheets is still a far distant goal,” says the financial institution.
If global warming is to be kept below 1.5 C`, the world must act now to reduce carbon emissions. Achieving this objective requires substantially lowering fossil fuel use through a clean energy transition.
A clean energy transition led by major economies is essential for attaining net-zero carbon emissions by 2050, and any delay in progress over the coming years could make this target unattainable.