Introduction

The climate crisis is an urgent, human-driven systemic challenge. Fossil CO2 emissions are projected to reach a record high of 38.1 billion tonnes, with the growth rate of total human-caused emissions slowing to an average of 0.3% per year over the last decade. Global temperatures could surpass the 1.5°C threshold as soon as the early 2030s. Habitability requires atmospheric CO2 to remain within a narrow range to prevent the climate from tipping into either a Snowball Earth state or a runaway hothouse.

The evolution of global climate governance since the early 1990s

Global climate governance began in earnest in 1992 at the Earth Summit, establishing the United Nations Framework Convention on Climate Change. The 2015 Paris Agreement committed 193 countries to limiting global warming to well below 2°C. However, progress has been slower than required. The Global Stocktake concluded that the world is off track, identifying an ambition gap where targets are insufficient and an implementation gap regarding the shortfall in delivering stated commitments.

An emerging climate era (I): Escalating extreme climate events and damage

Physical risks are increasingly materialising across regions. Europe faced approximately EUR 822 billion in losses between 1980 and 2024, with 25% of these losses occurring in just the last four years. Sea-level rise has more than doubled from 2.1 mm/yr in the 1990s to 4.7 mm/yr. An insurance gap is widening, as only about a quarter of climate-related catastrophe damages in the EU are currently insured, leaving many losses uncounted.

An emerging climate era (II): Rising uncertainty, tipping points, and “potential surprises”

Climate change involves deep uncertainty and potential tipping points, including the collapse of ice sheets or the disruption of the Atlantic Meridional Overturning Circulation. Research suggests that at 1.2°C of warming, we have already entered a danger zone. These developments highlight the accelerating pace of physical change and underscore the need for climate policies that are flexible and adaptive rather than static and purely predictive.

An enigma: Why is humanity failing to act decisively in the face of a massive threat?

Humanity has failed to act decisively because carbon emissions constitute a near-perfect global externality. This free-rider problem is compounded by a cognitive deficit where mental models fail to update in line with new evidence. Furthermore, public-sector policy priorities have shifted towards energy security and defence, frequently crowding out climate action. Political polarisation and lobbying for short-term profits further constrain the feasibility of ambitious decarbonisation measures.

The triple-track nature of the climate crisis

The contemporary crisis unfolds along three interconnected tracks: geophysical inertia, the cognitive gap, and climate policy lag. Geophysical inertia means even strong mitigation efforts today only yield benefits after substantial delays. Policy lag arises from weak collective incentives and electoral cycles. Aligning society’s reaction time with the rapidly shrinking intervention window is now a central task for global climate governance to prevent crossing critical tipping points irreversibly.

NGFS scenarios: The erosion of an orderly transition

The NGFS framework integrates research into scenarios ranging from Net Zero 2050 to Hot House World. Most adverse case projections show warming reaching approximately 4.5°C by 2100. These scenarios demonstrate that delayed or fragmented action amplifies long-term macro-financial downside risks and increases the prevalence of negative outcomes. Conversely, early and orderly action acts as a form of insurance, reducing future physical and transition risks.

The climate policy trilemma from a public finance perspective

Policymakers face a trilemma comprising mitigation, adaptation, and restoration. These are complements rather than substitutes; delaying mitigation increases future adaptation and restoration costs. Climate hazards weaken fiscal positions and debt sustainability, reducing the fiscal space available to finance the green energy transition. Governments must simultaneously accelerate mitigation to slow greenhouse gas accumulation while scaling up adaptation to contain mounting losses from extreme events.

Deep uncertainty, tipping points and the case for precautionary climate actions

Deep uncertainty necessitates a precautionary approach where society acts strongly before windows of effective intervention close. Crossing geophysical tipping points may trigger irreversible changes with significant latency. Proactive climate action is justified as a hedge against catastrophic impacts and extreme, draconian interventions that would be required later. This strategy treats mitigation and adaptation as insurance to preserve economic stability and reduce long-term damage.

Levers to speed up the transition

Seven practical levers can accelerate the transition. First, raising carbon costs to align with the social cost of carbon, estimated between $51 and $185 per ton. Second, enhancing climate disclosures and sustainability reporting. Third, taxing fossil fuel windfall rents. Fourth, expanding renewables, which supplied about 30% of global electricity in 2025. Fifth, deploying innovative finance, including green bonds. Sixth, addressing the supply side of fossil fuels. Seventh, increasing the role for carbon management.

Past successes of collective action

Historical collective action, including the 1987 Montreal Protocol and the response to acid rain, proves that coordinated responses to systemic threats are effective when risks are clearly communicated. While climate change requires more structural changes, these precedents demonstrate that science-based multilateral cooperation can reverse severe environmental damage. Rapid mobilisation against COVID-19 further shows that societies can respond at unprecedented speed and scale given adequate policy responses.

Closing the climate action gaps: Final remarks

A decade after the Paris Agreement, emissions have not yet begun a decisive decline. However, the Agreement remains a crucial anchor for global governance. A climate policy paradigm shift is needed, moving from marginal abatement models to a systemic, precautionary, and incentive-compatible framework. Climate policy must become a core organising principle of macroeconomic and security policy to tilt the odds away from irreversible climate damage.