Scientists have repeatedly warned us – with ever-growing intensity – that the planet is hurtling toward climate tipping points. Despite numerous international pledges, the evidence suggests that limiting global warming to 1.5 degrees Celsius is increasingly unlikely. If current trends persist, that threshold could be breached as early as 2028.

At the same time, biodiversity loss is accelerating at an unprecedented rate, with dire consequences for vulnerable communities and humanity at large. A stable climate and healthy ecosystems are inextricably linked, implying the risk of cascading catastrophes.

To be sure, there has been some progress on both fronts. The 2015 Paris agreement was the most ambitious and politically viable climate deal of its time. Based on a “pledge and review” model, it set an ambitious yet attainable target and introduced mechanisms to ensure broad participation, while establishing a framework for assessing national commitments against the shared goal.

Then, in 2022, the United Nations Biodiversity Conference ( COP15 ) adopted the Kunming-Montreal Global Biodiversity Framework, following a similar approach. While some major countries like India remained far behind, there was hope that they would eventually join as global momentum continued to build.

That optimism was short-lived. On the very first day of his second term, US President Donald Trump signed an executive order titled “Unleashing American Energy” and announced that the United States would once again withdraw from the Paris agreement, dismissing climate change as a “hoax.”

Governments and civil society now face a fundamental challenge: developing viable strategies for achieving climate and biodiversity goals without US involvement.

In a recent Bruegel-Center for Economic Policy Research report, we explore how this can be done. We begin with the recognition that while the US remains a major greenhouse gas emitter, its policies alone are unlikely to determine the planet’s fate. The decisive battleground is now in emerging markets and developing economies ( EMDEs ), which account for two-thirds of current emissions and are home to most of the world’s biodiversity.

With their emissions rising rapidly, EMDEs must urgently shift to low-carbon, nature-positive growth. But they face formidable obstacles: massive investment needs, high capital costs, limited fiscal space, and pressing development priorities.

Meaningful climate action will thus require mutually beneficial economic partnerships that align global emissions targets with EMDEs’ development needs. In our report, we identify four types of partnerships that could serve as pillars of a new cooperative framework. The first is a carbon pricing alliance, underpinned by a shared carbon border adjustment mechanism ( CBAM ).

While regulations and subsidies matter, carbon pricing is necessary to incentivize businesses and households to reduce their emissions. But without safeguards, it risks creating trade distortions by giving a competitive edge to countries that either don’t price carbon or set prices far below effective levels. That is the rationale for the European Union’s CBAM, which applies to only a handful of carbon-intensive products like steel and cement during its transitional phase.

To address this challenge, we propose creating a climate coalition of developed and developing countries committed to a tiered carbon price floor, based on income level. Members would benefit from mutual CBAM exemptions and gain access to financing, technology, and markets. The EU, for example, could collaborate with any country willing to set a meaningful carbon price, including the US – should it revise its current stance – and China.

Many EMDEs still depend on emissions-intensive coal-fired power plants because they require far less capital investment than greener alternatives. The second pillar, therefore, is a climate finance coalition dedicated to decarbonizing the power sector in these countries.

Accelerating this shift will require closing the massive investment gap: annual clean energy spending in developing countries must quadruple by 2030 to meet the Paris agreement’s targets. Compounding the challenge, the cost of capital in EMDEs is often twice as high as in advanced economies, making renewables appear artificially expensive despite falling technology costs.

We propose formal agreements in which developed economies provide climate financing in exchange for EMDEs’ commitment to ambitious net-zero targets. The EU, China, Japan, and South Korea, for example, could fund EMDEs’ decarbonization efforts at an annual cost of less than 0.3% of their combined GDP – a modest investment relative to the climate damage such an agreement would help avert.

The third pillar is a green industrial partnership between the EU, the United Kingdom, Norway, and selected countries in the Global South. Given its limited renewable-power potential, Europe will continue to rely on energy imports. But rather than shipping green electricity across oceans, it would be more efficient to relocate energy-intensive production to resource-rich EMDEs.

European industrial policies currently favour energy-intensive sectors and subsidize their decarbonization. A smarter approach would be to support downstream, high-value industries while phasing out protections for uncompetitive upstream production.

The fourth pillar is the creation of markets for carbon removal and nature protection. Reaching net-zero emissions implies net-negative emissions after 2050, yet carbon removal – whether technological or nature-based – remains underdeveloped, fragmented, and poorly incentivized.

Two innovations could help establish these markets. One is the introduction of cleanup certificates, which would allow emitters to take on carbon debt and repay it in the form of verified future removals, financed at scale through market demand.

Another potential solution is the creation of “nature shares” – a new class of financial asset designed to support long-term investment in biodiversity-rich regions. Unlike conventional carbon offsets, which are often plagued by credibility issues and short-termism, nature shares would offer a steady stream of carbon and biodiversity dividends, priced transparently and backed by robust public governance. These tools would enable markets to treat nature not as a liability, but as an asset.

The EU is pivotal to advancing this agenda. With its mature carbon market and regulatory credibility, the bloc is well positioned to serve as the backbone of emerging international coalitions. To that end, it must accelerate its own emissions reductions, expand the CBAM, and forge meaningful industrial partnerships. In a world approaching climate catastrophe, Europe has a rare opportunity to lead by example.

Jean Pisani-Ferry, a senior fellow at the Brussels-based think-tank Bruegel, a senior non-resident fellow at the Peterson Institute for International Economics and a professor at Sciences Po; Beatrice Weder di Mauro is the president of the Center for Economic Policy Research and a professor of global economics, climate and nature finance at the Geneva Graduate Institute; and Jeromin Zettelmeyer is the director of the Brussels-based think-tank Bruegel.

Copyright: Project Syndicate