To reach the level of investment in renewables required to avert dangerous climate change, $12.1 trillion of investment will be needed over the next 25 years – $5.2 trillion above business-as-usual projections.
These are the findings of a new report, Mapping the Gap: Road from Paris, by Ceres and Bloomberg New Energy Finance. It was announced at the UN Investor Summit on Climate Risk, a gathering of 500 global investors held in the wake of the climate agreement reached last month in Paris.
‘Clean energy investment is poised for rapid growth. While the scale of this new investment opportunity is massive, it is dwarfed by the capacity of global financial markets to unleash the needed investment.’
Mapping the Gap: Road from Paris
According to the report, achieving the Paris climate agreement’s goal to limit global temperature rise to below 2ºC will require $12.1 trillion investment in new renewable power globally over the next 25 years.
This includes an additional $5.2 trillion of investment in wind, solar, geothermal and other zero-emission power sources – or an extra $208 billion a year above and beyond the $6.9 trillion under business-as-usual projections.
A majority of this $12.1 trillion in new renewable power generation is expected to go to emerging markets in developing countries.
Investment on this scale will require a much broader range of financial products – including bonds and asset-backed securities – that commercial financiers, institutional investors and other capital market players can take advantage of.
To put the renewable energy financing challenge in perspective, the average new annual global investment opportunity for new renewable energy is about the same amount as US customers borrow annually for car loans.
‘The clean energy industry could make a very significant contribution to achieving the lofty ambitions expressed by the Paris Agreement.
‘To do so, however, investment volume is going to need to more than double, and do so in the next three to five years. That sort of increase will not be delivered by business as usual; closing the gap is both a challenge and an opportunity for investors. That is what this report is about.’
BNEF Chairman Michael Liebreich
The report highlights the critical role of supportive government policies that will enable more renewables investments, including the Paris climate accord’s ‘ratchet’ mechanism, which will help ensure that every country’s commitments to reduce carbon pollution become more ambitious over time.
‘There is huge opportunity for expanded clean energy investments today. But to fully bridge the investment gap, policymakers worldwide need to provide stable, long-lasting policies that will unleash far bigger capital flows. The Paris agreement sent a powerful signal, creating tremendous momentum for policymakers and investors to take actions to accelerate renewable energy growth at the levels needed.’
Sue Reid, Vice-President of Climate & Clean Energy at Ceres
The report’s findings underscore that clean energy financing will soon no longer be considered ‘alternative’ and will begin to more fully resemble other, more established infrastructure sectors such as transportation or property, from a financial structure perspective.
As clean energy moves firmly into the mainstream, it will inevitably account for expanding and significant shares of infrastructure investors’ portfolios.
‘These investments will inevitably find their way into the portfolios of pension funds, insurance companies and other infrastructure investors.
‘Clean energy is a critical part of 21st infrastructure, so this transformation is fundamental to our investment future.’
Ken Locklin of Impax Asset Management, partner on the Mapping the Gap research
Click here to read the full report, Mapping the Gap: Road from Paris.
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