A “Cap and Invest” Strategy for Managing the Intergenerational Burdens of Financing Energy Transitions

Abstract

The investment required to meet the climate change commitments of the United Nations Framework Convention on Climate Change’s 2015 Paris Accord is on the order of $100 trillion over the next two decades. Reducing greenhouse gas emissions requires a strategy for managing risk that constitutes an intergenerational burden. This chapter proposes a “cap- and-invest” strategy for the build-up of necessary infrastructure to reduce greenhouse gas emissions consistent with national commitments. Cap-and-invest is in sharp contrast with cap-and-trade. An economy-wide general environmental tax on consumption creates a large pool of capital to de-risk investment in emerging low-carbon solutions to the threat of climate change. Innovation in governance is an integral part of the policy to leverage the capital markets through public-private partnerships in green financing.