Climate Change Finance and Carbon Offsets: Addressing Global Climate Challenges through Innovative Funding and Emissions Reduction Mechanisms

Monday Sunday Adiaha

EconStor Open Access Articles and Book Chapters, 2026, vol. 14, issue 1, 48-64

Abstract: The global climate finance landscape remains insufficient to meet Paris Agreement targets, with unclear contributions from public, private, and voluntary carbon market flows. This study analyzed the structure and sufficiency of global climate finance flows against those targets using secondary quantitative data from key repositories (CPI, MDB Climate Finance Reports, BNEF, Ecosystem Marketplace), assessed for additionality, concessionally, and Paris alignment. Total tracked climate finance flows for 2019 were approximately 579 billion, comprising 253 billion from public sources and 326 billion from private investment in renewable energy. A detailed breakdown reveals foundational but insufficient public finance: Multi lateral Development Bank (MDB) climate finance total led 61.6 billion, with 67% directed to low- and middle-income countries. Private investment was concentrated in renewable energy, with combined global wind and solar investment reaching 269 billion in 2019. The analysis identifies the Voluntary Carbon Market (VCM) as a potential bridging mechanism, though one facing severe contraction and integrity challenges. Transaction volume exceeded 100 MtCO2e in 2020, dominated by forestry projects (52723 million, with a 56% year-on-year volume decline, signalling buyer hesitancy due to pervasive limitations. These include uncertainty regarding additionality, permanence risk, systemic over-crediting (with a significant share of credits failing new integrity benchmarks), and insufficient equity and data governance. The study concludes that while scaling proven mechanisms like green bonds is necessary, it is insufficient alone. Aligning financial flows with climate imperatives requires coupling this scale with rigorous reforms to carbon offset verification, strengthened market governance, and more transparent reporting to address critical integrity and data quality gaps.

Keywords: Climate Finance; Carbon Offsets; Carbon Market; Green Bonds; Public Finance (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:343424

DOI: 10.4038/jur.v14i1.8094

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