Brookings releases first of its kind analysis of the challenges of financing climate projects for both government and investors

Washington, D.C. –  Despite bold pledges from the public and private sectors, the United States continues to fall short of its climate commitments. The Brookings Institution today released a groundbreaking report, “Mobilizing the Market,” which highlights how America’s climate debates have oversimplified the trade-off between rapid investment and economic harm, while neglecting the need for nuanced policies that align profitability with environmental and social costs. For those in the private sector and government seeking to understand why this economic transition isn’t happening as quickly as it can or should, and why equity continues to be an overlooked part of the discussion, this is the definitive study on the matter.

Meeting the estimated $50 trillion needed to transition from fossil fuels to clean energy requires far more consistent and equitable investment practices. And despite the policy success of the Inflation Reduction Act, investments are trending in the wrong direction: the climate tech sector saw a 30% decline in 2023. With so many climate goals benchmarked for 2030, it is crucial to have this assessment, which was made possible by generous support from HSBC, to both levelset and guide policymakers and C-suite executives in adjusting their strategies to achieve these targets.

“While the costs of this inertia are shared between the private sector and all levels of government, they fall hardest on those living in marginalized communities, where people face greater environmental hazards and rising insurance premiums,” said Adie Tomer, senior fellow with Brookings Metro. “This report offers a sober assessment of the challenges of getting this right, and makes it clear that it is time for all parties to move past virtue signaling and decide on new rules of engagement.”

The financial costs of climate-related disasters are mounting, with the U.S. experiencing 375 extreme weather events since 1980, each causing at least $1 billion in damages. In recent years, the frequency and cost of these disasters have significantly increased, hitting $123 billion annually over the past five years. Our collective inability to speed up investments at the pace required by our planet necessitated a serious and sober evaluation of the main obstacles in this transition.

Finding no existing comprehensive study on the subject, the authors conducted an extensive literature review and interviewed over 30 experts from the financial sector, research community, and public sector. The result is “Mobilizing the market,” which provides a detailed overview of who bears the burden of climate change and what is needed to address these challenges.

The authors name nine of the biggest challenges to equitably transition our economy:

1. Climate accounting is immature.
2. The current information environment disadvantages smaller actors.
3. Limited government capacity incentivizes negative outcomes.
4. Climate-related benefits and costs are underpriced, and in some cases unpriced, particularly due to a lack of established “cost of carbon” or similar measures.
5. Current financing models often favor GHG-emitting projects that use established technologies.
6. Insurers, communities, and other partners are not yet capturing revenue streams to accelerate adaptation projects.
7. Fragmented political authority over projects often clashes, creating uncertainty among private investors.
8. Public debates have struggled to balance the need for new climate investments with the ongoing demands to finance established economic activities where clean technologies are not yet available.
9. Political timelines—whether related to election results or terms of office—often misalign with project delivery timelines.

America’s climate debates often present a false choice between rapid climate investment and economic harm, ignoring the complexities of project financing and the benefits of investing in resilient infrastructure. Effective climate action requires moving beyond virtue signaling and aligning public policy with long-term costs and benefits, as neither the government nor the private sector can address these challenges alone.

In addition to “Mobilizing the Market,” there are six accompanying briefs that do a deep dive on transportation decarbonization, buildings, energy, equity, industry, and infrastructure adaptation.

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