1,5°C?
Mind the Enabling Conditions
The role of finance and economic instruments

Some orders of magnitude for the mid-century• Additional annual average energy-related investments forthe period 2016 to 2050 in 1.5°C compatible pathways
compared to baselines: around 830 billion USD2010 (150billion to 1700 billion USD2010 )• the energy investments pass from 2% to 2,8% of the GDP• Annual investments in low-carbon energy technologies andenergy efficiency are upscaled by roughly a range of factorof 4 to 10) by 2050 compared to 2015
• Global average discounted marginal abatement costs overthe 21st century are roughly 3-4 times higher than in2°Cpathways.

How to go there starting from a specific macroeconomic context• Strenghtening action means to account for the short term world tensions:• Use climate action as a lever to reducing the ‘fault lines’ of the world economy (R.
Rajan)• gap between propensity to save and propensity to invest• fragility of the financial intermediation system (tragedy of the horizons)• Too export dependent development strategy in developing countries after theAsian Crisis; A large funding gap on infrastructures (IMF)• the traps of non targeted ‘quantitative monetary easing’ and of ‘growthausterity’• Towards a new growth regime3 Between 2015 and 2035, additional investments ininfrastructure sectors (e.g. energy, transportation, buildings,water and telecommunication) are estimated annually to
0.6% of global GDP, i.e. 2.5% of world savings { Box 4.8}

 An redirection of investments within these sectors:
 a 15% increase of the energy investments compared with NDCs,
 doubling of investment in low-carbon energy technologies, energy
efficiency and energy storage
 20% decrease of investments in conventional fuel supply chains.

 Reducing the sectoral and geographic mismatch between
current capital flows and financial needs.

How much mitigation investment in energy and otherinfrastructure? (Source: Box 4.8)
Estimated annualized mitigation investment (2015-2035 in Trillion US$ 2010MER)

• To operate this redirection of 2.5% of world savings,
towards low carbon investments, both public and private
investment will be needed.
• The redirection of private investments is between 5,6%
and 8,3% of yearly private capital revenues (value ofcapital plus interest revenues)• De-risking these low carbon investments (publicguarantees, feed-in tariffs …) is key to increase theirvolume and facilitate the greater involvement of financial
actors (institutional investors, bonds markets)• Two key parameters are the access to capital markets at
low interest rates, and the emergence of new low-carbon
asset classes

• Adaptation finance consistent with global warming of
1.5°C is difficult to quantify and compare with 2°C, dueto important knowledge gaps
• Costs of adaptation may be lower at global warming of
1.5°C than for 2°C but would be higher than the USD 22.5billion (2014) estimates of bilateral and multilateralfunding for climate change adaptation• Currently, 18–25% of climate finance flows to adaptationin developing countries (high confidence) {4.4.5, 4.6}

• The 1.5°C transition could be enabled by policy packages thatmitigate the adverse impacts of higher marginal cost of energy
services on growth and social welfare.
• These packages should be embedded in an evolution of the fiscal
and financial systems :• explicit or implicit carbon pricing, reforms of the subsidies and otherpricing policies (real estates, land, tolls),• de-risking devices and new financial products.

• They should strengthen the efficacy of performance standards,
R&D and technology policies• They could also include• compensating transfers for the population the most vulnerable to theenergy prices• the emergence of new low-carbon asset classes. Cross-Chapter Box 8 in
Chapter 3 and 11 in Chapter 4, 2.5.1, 2.5.2, 4.4.5, 5.5.2}

International cooperation needed• Some of these policy packages depend upon sovereign decisions of countries• however sub-sovereign initiatives are also needed (cities, regions), with theinvolvement of local communities and indigenous peoples• international coordination/cooperation is critical to enhance the overall
efficacy of domestic policies••••

Reforms of the financial systems
Reforms of the ODA
Enhancement of scientific and technological cooperation
Mitigation of trade effects