Italy’s central bank chief backs carbon incentive scheme to help poorer countries #ItalyFinance

Italy’s central bank governor Fabio Panetta has thrown his support behind the idea of a global carbon reduction incentive scheme, arguing that it could help provide financing for emerging economies seeking to speed up their transition to net zero.

Speaking on Monday at the start of a conference at the Banca d’Italia on “ensuring an orderly energy transition”, Panetta pointed out that emerging market and developing economies (EMDEs), excluding China, account for just 15% of global clean energy investment despite representing a third of global GDP and two thirds of the world’s population.

“This low amount of investment is partly due to the difficulty in raising capital,” Panetta said in his welcome address to the conference, which was jointly organised by the G7 and the International Energy Agency.

“In EMDE countries, the cost of financing for transition-related projects can reach levels as high as double those found in advanced economies.”

Panetta argued that a global carbon reduction incentive, under which countries with higher per-capita carbon emissions would pay into a fund that gave payouts to nations with lower emissions, could provide “a fair and effective solution” to this funding shortfall.

“There is broad consensus in the scientific community that the long-term economic damage from climate change and a disorderly energy transition would far outweigh the costs of implementing the Paris Agreement,” Panetta told the conference, which was organised under Italy’s G7 presidency.

The payouts required by rich countries under the carbon reduction incentive scheme “would still be less than the economic damage they would suffer from climate change if the transition failed”, he said.

Activists are hoping for progress on global climate finance initiatives when leaders gather in November for both the G20 summit in Brazil and the next Cop talks in Azerbaijan.

Panetta, who took over as Banca d’Italia governor last November, was previously a member of the European Central Bank’s executive board. He has previously argued for policies that provide incentives to lower fossil fuel demand, streamline the approval process for renewable energy projects, and enable swift adoption of environmental disclosures.