Worldwide investment in wind, solar and other clean power plants will have to grow to $1.3 trillion a year as the crux of a capital shift will sees a total of $110 trillion channeled into building a zero global economy by 2050 to mitigate the worst effects of climate change, according to a new report from the group. consultant of the Energy Transition Commission (ETC).
About 70% of the colossal total costs, equivalent to an average of $3.5 trillion annually, up from $1 trillion today, $2.4 trillion for production, transmission and distribution low-carbon electricity, $900 billion to expand and renovate the power grid. fit for purpose over the coming decades and $200 billion to improve grid flexibility through the addition of batteries and seasonal storage capacity, authors of 'Funding Transition' : How to create net zero cash flow for the economy' .
“While this report confirms that there are no major fundamental barriers to the energy transition – that is the hypothesis – it is surprising that the numbers show that 70% of financing must be mobilized [into electrification],” said ETC deputy director Mike Hemsley, speaking to Recharge prior to launch.
“This report also identifies that two conceptually different types of funding are required: 'classic' investments that provide an economic return on money spent, and preferred payments/ subsidies, which are essentially paying someone to do something they might not otherwise do without an economic incentive," he added, such as "cutting down forests or continuing to operate coal-fired power plants, or using technology to suck carbon out of the atmosphere.”
Along with market-shaping investments in the global power grid, the ETC report highlights the $80 billion in spending needed to advance the nascent clean hydrogen sector, split between large-scale green hydrogen production industrial and supporting pipelines, refueling stations, import and export terminals, and necessary storage stations.
Worldwide decarbonization of transport will call for $130 billion per year to develop charging and refueling infrastructure for road vehicles, $70 billion for sustainable aviation and $40 billion dollars for green shipping.
According to ETC calculations, making the heavy-emitting industry carbon neutral globally by 2050 will require $70 billion per year, including $10 billion to produce decarbonized steel, 10 billion dollars for integrated carbon capture and storage for cement plants, $40 billion to green chemical industry processes, and $10 billion to deploy low-carbon technologies at smelters and aluminum filter.
The ETC report highlights that the average annual spending needed to meet the net zero targets can be expected "to be offset by an average annual reduction of 0.5 trillion dollars invested in fossil fuels", about 1.3% of future global gross domestic product over the next 30 years.
“At a global macroeconomic level, it is clearly possible to achieve the $3 trillion a year net capital investment described in this report. But the volume of these numbers [however] is staggering,” noted Hemsely. “In a world where we have struggled to raise $100 billion a year for climate finance for the past decade or so, we are now talking about raising $300 billion.
“Many financiers [interviewed for this report] are building a lot of renewable energy [plants] and suspect 'the job is done'. And yes, that's very helpful and we need to develop more renewable energy, but, for example as a bank, a lot of your portfolio is real estate, so you should also decarbonize it.
“Are [most of our financial institutions] thinking about the bigger picture? Worryingly not.”
Hannah Audino, lead author of the report , emphasized the “rearrangement of priorities” needed in investing in the broader energy transition: “When you start talking about franchise finance and where target groups of scarce money, it is important to bring it all together to determine what needs to be targeted, where this funding needs to be prioritized, what sector, country and at what speed.”
Achieving net zero globally, depends on governments adhering to “well-designed real economic policies [that] create strong incentives for private investment in the process.” energy transition… including setting ambitious targets for renewable energy production by 2030, carbon pricing and product regulation to promote decarbonisation in heavy industry, aviation and transportation transfer, and set a date for banning the sale of internal combustion engines," she said.
“We have tried to align the policy discussion [in this report] around the key areas that investors focus on: confidence in zero orbit and clear vision, returns [from renewable energy] versus high carbon alternatives and how to connect to the 'green premium'', downside risks and supply side bottlenecks including planning and permitting.
“What is needed is a set of policy options that work together to address these areas and build a viable business case for investors,” said Audino.
The levels of investment required, especially in the power system, are not “just about costs”, the ETC report emphasizes, but also represent “both large private investment opportunities and attractive investments for the whole society. festival".
The processing of ETC numbers suggests that a transition to a global zero economy will require investment that peaks around $4 trillion around 2040-45 and declines thereafter.” offset by increased savings from reduced operating costs, which mainly arise from the reduction in fossil fuel use”.
“Non-carbon power systems, whether renewable or nuclear, are characterized by high initial capital costs but much lower operating costs than fuel-based systems,” the report notes. fossil material”. $2-3 million per year by mid-century.
“Therefore, the actual incremental cost of the required investment is much less than the total investment required. But the scale of capital mobilization and capital reallocation needed would not have occurred without strong real economic policies across all economies and actions to address financial sector challenges. in low- and middle-income countries.”
The ETC report delves into the difference in investment scaling in industrialized countries versus developing countries through 2030, where high-income economies are building for children. net zero would need to see current spending “nearly double” while in middle and low-income countries a “fourfold increase in [investment]” is required.
“In some low- and middle-income countries, private financial flows alone cannot secure adequate investment due to challenges posed by high perceived or real macroeconomic risks, savings in Insufficient water and other factors increase costs and reduce the supply of private finance. Therefore, there should be a significant increase in international financial flows for some low-income economies,” said Hemsley.
“Our analysis of [investment data] by industry and group of countries and how much it shows in [economies] is high compared to low income and really highlights that the money is yet to come.” with the following economies and this really needs to be accelerated if the energy transition is going to happen [in a 'just' way].
