Open markets, trade, finance and investment are vital enablers of the net-zero transition. Accelerating global emissions reductions will rely on technology diffusion and trade in environmental goods and services. Open markets increase competition and innovation and so are critical to driving progress. International co-operation remains critical. However, recent trade tensions and a shifting geopolitical landscape pose significant risks to accelerated action. Finance and investment are equally fundamental to scaling-up climate action: according to the IEA, in order to reach net-zero emissions, global annual clean energy investment needs to rise by almost USD 5 trillion by 2030, more than double the average over the past five years (IEA, 2023[54]). There is no shortage of capital to meet this need, but current investment flows are not well-aligned with climate goals (IPCC, 2022[55]; OECD, 2024[4]).
Fast‑tracking Net Zero by Building Climate and Economic Resilience
Numerous synergies between trade and environmental policies exist. Promoting trade in environmental goods and services can boost the diffusion of environmental technologies. However, defining and classifying environmental goods and services remains difficult, with countries often taking diverging approaches, complicating negotiations on trade liberalisation.
Access to critical raw materials is critical to the energy transition, but their extraction and processing can be polluting and remain concentrated in only a few countries (Figure 14). Trade in critical raw materials requires international co-operation and efforts to diversify supply chains (Box 1).
Energy security poses a “trilemma” for policymakers: the need to rapidly reduce energy sector emissions while ensuring the security and reliability of energy supply and minimising the cost to consumers. Climate action can ultimately boost energy security through reducing reliance on fossil fuel imports, but supply chain risks in the medium term are of critical importance. Many key green energy technologies are mineral- and metal-intensive, and despite notable expansions in extraction and processing capabilities over the past decade, the market remains tight (Figure 14). In manufacturing, global capacity for key green energy technologies is also geographically concentrated. The Australian Strategic Policy Institute (ASPI) estimates that China leads globally in 37 out of 44 technologies essential for the energy transition. However, the supply of critical materials and clean energy technologies is only necessary for maintenance or increasing low-carbon power production. Unlike power plants based on fossil fuels, power production can be maintained in the event of short-term disruptions to clean-energy supply chains. Furthermore, improving recycling of these materials and adoption of circular economy practices can help reduce import dependence. Importantly, resilience along the supply chain is an essential but insufficient condition to ensure energy security in the transition, which also relies on building and maintaining the necessary enabling conditions such as grid capacity due to progressive electrification of the economy.
Source: (IEA, 2023[54]), (IRENA, 2023[57]) in (OECD, 2024[58]).
Note: Shares in global production, in percentage. AUS – Australia; BRA – Brazil; CHN - China; CHL – Chile; COD – Democratic Republic of Congo; IND - India ISR – Israel; KOR – Republic of Korea; JPN – Japan; MAR – Morocco; MMR – Myanmar; MOZ – Mozambique; PER – Peru; PRT – Portugal; TUR – Türkiye; RUS – Russian Federation; ZAF – South Africa; ZWE – Zimbabwe. Shares in global production based on gross weight of production.
Source: (Kowalski and Legendre, 2023[56]).
Trade also plays a central role in transitioning to a circular economy by enabling global supply chains of secondary (recycled) raw materials and products. It facilitates trade in end-of-life products such as waste, scrap, second-hand items, or goods for repair or refurbishment, as well as services that facilitate circular economy practices such as recycling or repair. Without more ambitious circular economy policies, the amount of material resources needed to sustain the global economy is projected to nearly double from 92 gigatonnes in 2017 to 167 gigatonnes in 2060 (OECD, 2019[59]). Additionally, trade can create more sustainable and resilient food systems, for example by encouraging the adoption of more sustainable practices to meet export markets standards.
However, the cross-border implications of many environmental issues create challenges for leveraging the trade-environmental policy synergies discussed above. Diversity across jurisdictions in approaches and stringency in climate policies can lead to negative spillover effects, such as carbon leakage and concentration of polluting industries in regions with less stringent regulations. The use of trade-related climate policies, such as requiring imported goods to meet certain environmental standards, can lead to an increasingly complex regulatory landscape that risks marginalising low-income countries and small producers in the global market.
The increasing prevalence and scope of government support schemes as part of the shift towards “green” industrial policy can also have market-distorting effects. Producer support can create unfair competition, push more efficient or innovative suppliers out of the market, create incentives to lock-in existing technologies and lead to market concentration and risks inciting retaliatory efforts to shore-in production activities for key technologies by other large market players. Trade-related measures such as local content requirements or tariffs on foreign imports of key technologies can raise the costs of the net-zero transition. A subsidy race for clean energy technologies also risks leaving behind economies that lack the fiscal capacity to support domestic production.
Government support for other technologies can also impact environmental outcomes. For example, government support for aluminium and steelmaking activities has contributed to increased emissions by incentivising the expansion of production capacity, notably in more emissions-intensive locations, and by benefitting the most carbon-intensive firms, who consequently took over market share at the expense of lower-emitting competitors (Garsous, Smith and Bourny, 2023[60]).
Addressing these challenges requires robust international co-operation, for example on harmonising environmental standards and trade regulations, enhancing transparency and data sharing, designing measures with awareness of their potential trade distortions and risks, as well as building capacity and leveraging existing international frameworks. This also includes ensuring that trade agreements work to achieve environmental policy objectives, for example as in the Agreement on Climate Change, Trade and Sustainability (ACCTS), launched in 2019.1
Advancing measurement of the carbon footprints of individual products could be instrumental in allowing governments to better harness trade as a positive lever in driving climate action. For example, better information on carbon footprints will improve risk assessment of carbon leakage, as policy responses to deal with leakage risk require such information for implementing border adjustment charges on emissions embedded in imports.
Note: Emissions intensity (emissions-to-production ratio) calculated for 31 firms included in the government support dataset from (OECD, 2021[61]) based on data from the CRU emissions analysis tool. Average annual government support received between 2006 and 2021 is calculated for each firm. The median of obtained values is then used as a threshold to separate major and minor recipients of government support – i.e. major recipients of government support are the half sample of firms with the largest average annual government support. The width of the columns represents the production of each firm.
Current emissions data are often insufficiently accurate, timely and granular, and fragmented reporting standards and calculation methods make obtaining comparable data challenging. However, several initiatives are underway to tackle these challenges, including the OECD’s Inclusive Forum on Carbon Mitigation Approaches (IFCMA) (OECD, 2024[62]) and complementary work on improving measurement of the carbon footprint of agri-food products (OECD, 2025[63]). Additionally, international co-operation is critical to facilitate technology transfer and mobilise finance for developing countries to support development, access, local production and deployment of green technologies, thereby driving progress towards meeting climate and sustainable development goals.
Mobilising and redirecting investment and finance at scale remains one of the most intractable barriers to accelerating climate action. While many of the technologies necessary to meet the Paris Agreement goals are already available, finance is still not flowing at the pace and scale needed to keep global warming to a maximum of 1.5°C, or to adapt and build resilience to the impacts of climate change.
Available evidence across real economy investments and layers of the finance sector remains limited, but consistently points to a low level of alignment of financial flows and stocks with climate mitigation goals (OECD, 2024[4]). In 2022, new investments in clean energy reached USD 1.7 trillion – surpassing the USD 1.5 trillion invested in fossil fuels – but this represents only a small share of total investments, with total fixed capital totalling USD 26.4 trillion in the same year (Figure 16).
Note: ‘Renewable power’ relates to investments in power generation from renewables. ‘Other clean energy’ refers to investments in energy efficiency and other end uses, electricity networks, storage, nuclear power generation, and clean fuels. ‘Fossil fuels’ relates to investments in fossil fuel supply and power generation from coal, oil, and natural gas.
Source: (OECD, 2024[4]).
Concerning financial assets, while considerable blind spots exist, low-carbon energy supply accounted for only 4% of global listed equity compared to 10% for fossil fuel supply. Banks also continue to heavily finance fossil fuel supply, allocating USD 1 trillion in 2022, compared to USD 0.7 trillion for low-carbon energy (OECD, 2024[4]). There are no comparable estimates for investment in climate change resilience due to data and methodological gaps, but available evidence points to a high degree of exposure to various physical climate-related risks across multiple geographies and sectors (Noels et al., 2024[64]).
Aligning finance with climate goals is hindered by three main structural challenges:
1. Weak signals, planning, and delivery in the real economy, which highlights the need for well‑designed and coherent policy packages.
2. Misalignment of financial sector fundamentals, which calls for better integration and pricing of climate‑related risks in financial markets. This includes supportive financial sector policies, as well as cultural mindset shifts, e.g. to improve climate education and financial literacy.
3. Inadequate mobilisation of climate finance for emerging markets and developing economies (EMDEs), which requires improving domestic enabling conditions, unlocking blended finance and other derisking instruments from multiple development banks (MDBs) and donors, and strengthening domestic financial markets.
Real-economy policies are fundamental levers to increase the climate alignment of finance, but the role of policies to address financial sector challenges cannot be ignored. This is increasingly being recognised, with financial sector policies integrating climate-related considerations such as transparency, and disclosure requirements having more than quadrupled since Paris Agreement in 2015 (OECD, 2024[4]). By 2023, 70 countries had put in place climate-finance guidelines, including taxonomies.
Despite this progress, more evidence is needed to assess the effectiveness of financial sector policies in aligning financial flows with climate goals. The diverse and often fragmented nature of definitions and regulations remains a critical barrier to scaling up investment. Making reporting requirements interoperable and ensuring that they cover complementary metrics will be crucial to better understand the alignment of finance with climate objectives, and how to more effectively direct finance flows to climate-aligned activities.
Making reporting requirements interoperable and ensuring that they cover complementary metrics will be crucial to better understand the alignment of finance with climate objectives, and how to more effectively direct finance flows to climate-aligned activities.
Mobilising finance and investment for climate action is particularly challenging in EMDEs, where investment must increase at least fourfold by 2030 (IPCC, 2023[65]; Bhattacharya et al., 2023[66]), from an estimated USD 600 billion in 2022 to USD 2.4 trillion per year by the end of the decade. Closing this gap can only be achieved with private finance from a range of commercial actors.
However, international public climate finance has yet to mobilise private finance for climate action at the scale, speed and urgency required. In 2022, in the context of the USD 100 billion goal, public funds from both bilateral and multilateral channels continued to make up the bulk (80%) of climate finance provided and mobilised by developed countries for climate action in developing countries (OECD, 2024[67]). This significant growth has been accompanied by an increase in mobilisation of private finance after several years of stagnation, but concerted efforts are still needed (OECD, 2023[68]).
The need to increase finance for climate action in developing countries is recognised by the decision reached at COP29 in 2024 on a New Collective Quantified Goal (NCQG) for climate finance, which includes two main quantitative elements: a goal to mobilise at least USD 300 billion per year by 2035 for developing country Parties for climate action, for which developed country Parties are to take the lead, and a broader call to scale up financing to developing country Parties for climate action from all public and private sources to at least USD 1.3 trillion per year by 2035. Such scale-up will require co-ordinated efforts across a broad range of actors, such as rapidly expanding the use of blended finance and private sector instruments for climate action, and addressing barriers in the international development architecture that could limit the deployment of such approaches. Additionally, conditions for investors in EMDEs need to be improved by strengthening national climate strategies and policy frameworks and addressing structural barriers to investment, for example through aligning international investment agreements with the Paris Agreement, and developing and deepening capital markets and financial systems.
← 1. The Agreement on Climate Change, Trade and Sustainability (ACCTS) is an international agreement aimed at achieving environmental policy objectives through legally binding trade rules. Signed by Costa Rica, Iceland, New Zealand, and Switzerland, ACCTS tackles fossil fuel subsidies, promotes trade in environmental goods and services, and establishes innovative eco-labelling standards.