Mechanisms to Prevent Carbon Lock-in in Transition Finance
Carbon lock-in occurs when high-emission infrastructure or assets continue to be used,
despite the possibility of substituting them with low-emission alternatives, thereby
delaying or preventing the transition to near-zero or zero-emission alternatives.
Transition finance, which focuses on the dynamic transformation and decarbonisation
of hard-to-abate sectors, frequently faces the issue of carbon lock-in, particularly
in considerations of investment feasibility and eligibility. Despite most transition
finance approaches incorporating lock-in avoidance as a core principle, existing transition
instruments and approaches put in place varying or limited mechanisms to prevent lock-in.
Building on the OECD Guidance on Transition Finance, this report takes stock of how
carbon lock-in risk is addressed in existing transition finance approaches (such as
taxonomies, roadmaps, or guidance), financial instruments, and relevant public and
private investment frameworks and methodologies. The report provides good practices
on the integration of credible mechanisms to prevent carbon lock-in, address greenwashing
risks and build confidence in the market. It can inform both public and private actors
in the development of transition finance approaches, standards for green, transition
and sustainability-linked debt, frameworks for corporate transition plans, or broader
climate-related disclosure frameworks.
Published on September 26, 2023
In series:Green Finance and Investmentview more titles