4.1.1 Exclusive comment: Why private climate finance flows where the Green Premium is already gone

Written by Andrea Maggiani, Founder of Carbonsink, renowned consultancy specialising in carbon offsetting and sustainability solutions.

One point clearly emerges from this analysis: the concentration of private climate finance in the energy sector is not accidental, it is structural. Renewable power, storage, and energy efficiency attract capital because the Green Premium, the extra cost of choosing a clean option over a fossil one — has largely disappeared, and in many cases has turned negative. Clean solutions in these sectors are cheaper, scalable, and supported by predictable revenue models. That is why private finance shows up.

This matters when we talk about unlocking private capital at scale, especially in emerging markets. Private investors do not allocate trillions based on moral arguments or climate ambition alone. They invest when risk-adjusted returns are competitive. Where the Green Premium persists  in adaptation, in early-stage mitigation technologies, and especially in carbon removals private finance remains limited, fragmented, or absent.

The data in this article confirms that public and concessional capital has played a crucial catalytic role, particularly through MDBs and blended finance. But there is an uncomfortable truth: de-risking alone is not enough if the underlying economics remain weak. The real challenge is not simply to “mobilise” private capital, but to systematically compress the Green Premium in the sectors that matter most for long-term climate stability.

This is where carbon pricing instruments, broadly defined, become critical. Whether through compliance markets, Article 6 mechanisms, carbon taxes, or credible voluntary carbon markets including emerging tools such as transition credits for coal-plant decommissioning, carbon pricing performs a unique function: it internalises climate externalities and directly improves project economics. In practical terms, it lowers the Green Premium where technology learning curves alone are not moving fast enough.

Crucially, the EU Emissions Trading System (ETS) does more than put a price on carbon. It turns emissions reductions into a predictable source of revenue. By creating stable demand and long-term price signals, it gives projects visibility on future cash flows. This makes it possible to finance projects with high upfront costs or long payback periods, attract both private equity and debt, and ultimately lower their cost of capital. This is why carbon markets are not marginal tools, but core financial infrastructure for scaling climate solutions.

The reason private capital is already flowing into energy is simple: the market works. If we want similar mobilisation for adaptation and deep climate technologies such as carbon removals, we must focus relentlessly on making these sectors work economically  by reducing uncertainty, standardising frameworks, and, above all, using carbon pricing and policy tools to close the Green Premium gap.

Until then, private finance will continue to do what it has always done: follow economics, not aspirations.