Robert Litterman: Can Financial Engineering Save The Planet?

The transformation of the economy to net zero is proceeding much too slowly. Globally, trillions of dollars of additional low-carbon investments are needed every year -- multiples of the current level of investment. Meanwhile governments are providing $7 trillion of annual subsidies to support fossil fuel usage. These enormous subsidies create a hurricane force headwind that prevents progress in decarbonizing the global economy. A carbon-linked bond is a simple financial instrument that would allow governments to create a credible time path in which to eliminate those subsidies and a globally harmonized forward curve of carbon prices. Together they would incentivize private capital markets to quickly fund the necessary transformation.