Can carbon pricing bridge the climate finance gap?

The challenge is not only the scale of finance, but its structure. Private capital remains difficult to mobilise due to policy uncertainty, perceived risks, limited pipelines of investable projects, and fragmented international support.

Evidence increasingly suggests that incremental changes to existing finance mechanisms are unlikely to close these gaps. More integrated, system-level approaches are required — linking policy design, public finance, carbon markets, and private investment within coherent transition strategies.

Part of what RESET does is to bring together researchers, policymakers, and practitioners to examine how climate finance mechanisms function in practice, particularly in the Global South.

The result of a recent project by Xian Hu and Suzi Kerr was a paper showing that international carbon markets have potential to support transitions, but only if they are embedded within broader development and policy frameworks. It also demonstrated that holistic transition planning — combining regulation, public finance, risk-sharing instruments, and capacity building — is essential to access private investment at scale.

From this paper we developed an analytical tool — the Climate Finance Gap Explorer. This interactive tool allows users to explore how different policy and market assumptions affect the size of the climate finance gap by 2030. Users can adjust parameters such as public and private finance growth, carbon pricing, and leverage effects to compare alternative scenarios.