Editing IPCC:AR6/SR15/Chapter-4 (section)

==== 4.4.5.6 Towards integrated policy packages and innovative forms of financial cooperation ====

<div id="section-4-4-5-6-block-1"></div>

Carbon prices, regulation and standards, improved information and appropriate financial instruments can work synergistically to meet the challenge of ‘making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’, as in Article 2 in the Paris Agreement.

There is growing attention to the combination of policy instruments that address three domains of action: behavioural changes, economic optimization and long-term strategies (Grubb et al., 2014) <sup>[[#fn:r1456|1456]]</sup> . For example, de-risking low-emission investments would result in higher volumes of low-emission investments, and would in turn lead to a lower switching price for the same climate ambition (Hirth and Steckel, 2016) <sup>[[#fn:r1457|1457]]</sup> . In the reverse direction, higher explicit carbon prices may generate more low-emission projects for a given quantum of de-risking. For example, efficiency standards for housing can increase the efficacy of carbon prices and overcome the barriers coming from the high discount rates used by households (Parry et al., 2014) <sup>[[#fn:r1458|1458]]</sup> , while explicit and notional carbon prices can lower the risk of arbitrary standards. The calibration of innovative financial instruments to notional carbon prices could encourage large multinational companies to increase their level of internal carbon prices (UNEP, 2016) <sup>[[#fn:r1459|1459]]</sup> . These notional prices could be higher than explicit carbon prices because they redirect new hardware investments without an immediate impact on existing capital stocks and associated interests.

Literature, however, shows that conflicts between poorly articulated policy instruments can undermine their efficiency (Lecuyer and Quirion, 2013; Bhattacharya et al., 2017; García-Álvarez et al., 2017) <sup>[[#fn:r1460|1460]]</sup> . As has been illustrated in Europe, commitment uncertainty and lack of credibility of regulation have consistently led to low carbon prices in the case of the EU Emission Trading System (Koch et al., 2014, 2016) <sup>[[#fn:r1461|1461]]</sup> . A comparative study shows how these conflicts can be avoided by policy packages that integrate many dimensions of public policies and are designed to match institutional and social context of each country and region (Bataille et al., 2015) <sup>[[#fn:r1462|1462]]</sup> .

Even though policy packages depend upon domestic political processes, they might not reinforce the NDCs at a level consistent with the 1.5°C transition without a conducive international setting where international development finance plays a critical role. Section 4.4.1 explores the means of mainstreaming climate finance in the current evolution of the lending practices of national and multilateral banks (Badré, 2018) <sup>[[#fn:r1463|1463]]</sup> . This could facilitate the access of developing countries to loans via bond markets at low interest rates, encouragement of the emergence of new business models for infrastructure, and encouragement of  financial markets to support small-scale investments (Déau and Touati, 2017) <sup>[[#fn:r1464|1464]]</sup> .

These financial innovations may involve non-state public actors like cities and regional public authorities that govern infrastructure investment, enable energy and food systems transitions and manage urban dynamics (Cartwright, 2015) <sup>[[#fn:r1465|1465]]</sup> . They would help, for example, in raising the 4.5–5.4 trillion USD yr <sup>−</sup> <sup>1</sup> from 2015 to 2030 announced by the Cities Climate Finance Leadership Alliance (CCFLA, 2016) <sup>[[#fn:r1466|1466]]</sup> to achieve the commitments by the Covenant of Mayors of many cities to long-term climate targets (Kona et al., 2018) <sup>[[#fn:r1467|1467]]</sup> .

The evolution of global climate financial cooperation may involve central banks, financial regulatory authorities, and multilateral and commercial banks. There are still knowledge gaps about the form, structure and potential of these arrangements. They could be viewed as a form of a burden-sharing between high-, medium- and low-income countries to enhance the deployment of ambitious Nationally Determined Contributions (NDCs) and new forms of ‘common but differentiated responsibility and respective capabilities’ (Edenhofer et al., 2015; Hourcade et al., 2015; Ji and Sha, 2015) <sup>[[#fn:r1468|1468]]</sup> .

<span id="integration-and-enabling-transformation"></span>