Highlights

• Investment Transition: The planned energy transition requires $103 trillion investments from 2023-2050, needing a shift from fossil fuels to sustainable technologies

• Capital Re-allocation: The 1.5°C climate target needs an additional $47 trillion and re-direction of $26 trillion from fossil fuels to sustainable technologies by 2050.

• Resource Deployment & Access: Faster deployment of renewables and more global access to financing are needed to meet the 1.5°C target.

• International Collaboration: Coordinated action, political will, and innovative financial instruments are required for scaling up renewables globally.

• Expanded Risk Perception: Risk evaluations should incorporate environmental and social considerations, with the international community supporting developing nations.

• Public Funding & International Aid: Despite challenges, energy transition investments can foster resilient economies, needing international collaboration and public finance flows.

• Effective Fund Use: Public funds should be strategically directed towards policies supporting structural change and equitable sharing of economic benefits.

• Investment Shift: A transition to sustainable energy requires an investment focus shift to avoid stranded assets. The Planned Energy Scenario estimates sector-wide investments of $103 trillion from 2023 to 2050, with 60% allocated for transition technologies. However, 40% of investment is still intended for fossil fuels.

• Capital Re-allocation: To achieve the 1.5°C target, both a scale-up and re-allocation of investments towards transition technologies are essential. This scenario requires an additional capital expenditure of $47 trillion and redirecting $26 trillion from coal and oil-based technologies towards transition ones by 2050.

• Acceleration and Funding: The deployment of renewables in power generation and end-use sectors must quicken. Despite a record investment of $1.3 billion in energy transition technologies in 2022, it falls short of what is needed to achieve the 1.5°C target. Substantial investment in policy-making and capacity-building is required, and access to financing needs to be broadened globally.

• International Collaboration: Scaling up renewables necessitates robust international cooperation and coordinated action across the public and private sectors, requiring political will, comprehensive policy frameworks, and innovative financial instruments.

• Risk Perception: Risk perception needs to extend beyond investors’ returns to include environmental and social risks. Limited public funds in the developing world require international support.

• Public Funding Difficulties: Despite recent macro-economic and geopolitical challenges, investing in energy transition can support equitable, inclusive, and resilient economies. This process necessitates international collaboration and north-south public finance flows.

• Fund Utilization: Public funds, whether domestic or international, should be funneled through intermediaries using a variety of instruments. These instruments should promote structural change, just transitions, and ensure economic benefits are shared equitably.

The text outlines the significant investments needed to achieve the global transition to the 1.5°C Scenario by 2050. This scenario would require an investment of $150 trillion, which equates to an average of $5.3 trillion per year. Notably, this is an additional $1.7 trillion annually when compared to the Planned Energy Scenario.

In the end-use sectors, investment requirements are expected to reach $73 trillion, which will be allocated towards conservation and efficiency, electrification, renewable technologies, green hydrogen, and carbon removal. The power sector alone would need $61 trillion, with a significant portion going towards renewable power generation and the remaining towards infrastructure.

Furthermore, the annual investment in transition technologies would need to more than quadruple to meet the 1.5°C pathway. The power sector, in particular, would require an average annual investment of over $2.2 trillion through 2050. This increase is due to the higher demand and upfront costs associated with renewable energy sources.

Among the renewable energy technologies, solar and wind are expected to attract the most investment. Annual investments for solar PV, onshore wind, and offshore wind are predicted to increase by 2.6, 3.7, and 5 times, respectively, over the levels seen in 2021.

Other sectors like buildings and transport will also require substantial investments for energy efficiency, heat pumps, and electric charging infrastructure. Meanwhile, the industry sector will need to focus investments on energy efficiency, carbon removal infrastructure, and renewable-based technologies.

For biomass supply chains and conversion technologies, an investment of around $6.2 trillion would be required by 2050. This sum is divided among various sectors such as bioenergy-based power generation, biofuels supply, ammonia and methanol production from biomass, the deployment of bio-based plastics and organic materials, and the direct use of bioenergy in end-use sectors. Investments in green hydrogen production and supply infrastructure will average $170 billion per year until 2050.

Power grid enhancements are critical to scaling up renewables. Since conventional power grids were designed for large, centralized power plants, modifications are necessary to accommodate distributed power generation from renewable sources. Investments would be directed towards management and control systems, upgraded transmission and distribution infrastructure, smart grids, and the use of advanced analytics. By 2050, the cumulative investments in networks would amount to $22.4 trillion.

Green hydrogen and synthetic gas pipelines are integral to the scale-up of renewables, especially in sectors that are difficult to decarbonize, such as aviation, shipping, and heavy industries. The emergence of a clean hydrogen system is key to meeting demand from these sectors. There would need to be a significant increase in electrolyser capacity, from negligible levels today to 5,722 GW by 2050. Investments of $3.8 trillion would be required by 2050 for this expansion.

The aviation and shipping sectors contribute 2-3% of global emissions. Transitioning to low-carbon fuels and enhancing energy efficiency are essential to reduce emissions in these sectors. The total required investments in energy efficiency, retrofitting, and new technologies for these sectors would reach $1.4 trillion by 2050. Additionally, investments would be needed in storage facilities at ports and bunkering facilities to handle and store various fuels like ammonia, methanol, and hydrogen. A total of $0.3 trillion would be needed by 2050 to facilitate this transition.

– Evolving Infrastructure Needs for Electric and Hydrogen Vehicles

As part of the decarbonisation strategy, by 2050 there will be more than 2 billion electric cars (93% of the fleet), and electric buses and small trucks will make up 76% of their respective fleets. Furthermore, hydrogen-fueled large trucks will represent 17% of the fleet. Building a comprehensive electric charging infrastructure and hydrogen refueling stations will be vital to reach these targets, necessitating a cumulative investment of $9 trillion and $0.5 trillion through 2050, respectively.

– Industrial Retrofitting for Greater Sustainability

Achieving 100% CO2 emissions reduction in heavy industries like iron, steel, chemicals, and cement is a long-term project, with substantial technology shifts required. Existing plants would be retrofitted or replaced with best-available technology, aiming for better energy efficiency and CCS infrastructure from 2030 onwards. The investment for iron and steel industries would amount to $20 billion, and for the cement sector, a hefty $1.7 trillion is projected. In high-value-added chemicals production, a total of $4.5 trillion would be needed through 2050, the bulk going toward the shift from traditional feedstocks to biomass and hydrogen.

– Buildings’ Retrofitting to Enable Efficient Consumption of Renewables

With over three-quarters of the developed world’s building stock being poorly insulated and reliant on conventional fossil fuels for heat, considerable efficiency gains can be achieved via deep renovation. Investments amounting to around $21.6 trillion would be needed globally for such renovations and an additional $5.8 trillion for heat pump deployment through 2050.

– Energy Transition Investments & Policy Drivers

Investments in transition technologies hit a record high of $1.3 trillion in 2022. The primary sectors remained renewables and energy efficiency, followed by electrified transport technologies and heat pumps. Moreover, policy support has been crucial in stimulating growth in these areas. Investments in hydrogen also tripled from 2021, reaching $1.1 billion in 2022 due to robust policy support worldwide. Global investments in energy efficiency amounted to $273 billion in 2022.

– Investments and Policies for Renewable Energy

Annual investments in renewable energy peaked at $499 billion in 2022, driven by increasing demand for clean energy, and policy initiatives, including deadlines to meet renewable energy targets. Solar PV and onshore wind continue to dominate investments due to their cost competitiveness and strong policy support. However, end-use applications, such as heat generation and transport, received less than 10% of renewable energy investments annually between 2013 and 2022, indicating a continued reliance on fossil fuels.

Renewable energy investments continue to be highly concentrated in East Asia and the Pacific, primarily due to China’s ambitious carbon neutrality goals and significant investment in renewable energy. Vietnam is rising as a significant player in this arena, recently surpassing Japan in renewable energy capital. Meanwhile, Europe and North America hold roughly a quarter of all renewable investments, with the United States, the United Kingdom, Germany, and France leading the pack.

On the other hand, regions with developing and emerging markets received significantly less investment. Even with ambitious renewable energy targets, these regions are not receiving an equivalent share of the global investment. Africa’s share of investment, in particular, continues to fall, indicating a need for additional financial support.

Debt financing is becoming increasingly common in the renewable energy sector. This shift is largely attributed to the maturation and consolidation of major renewable technologies such as solar PV and onshore wind, which offer predictable long-term cash flows. Onshore wind, in particular, has attracted substantial debt investment, likely due to the involvement of state-owned financial institutions.

Public funding continues to dominate in most developing markets. This is reflected in the higher shares of debt lending in these areas. Conversely, private finance is more prevalent in Europe and North America, where equity finance is emerging due to high investment from commercial financial institutions and corporations.

Private actors, mainly commercial financial institutions and corporations, are the primary providers of investment in the renewable energy sector. However, public entities such as state-owned financial institutions, national development finance institutions, and state-owned enterprises were also significant contributors.

Looking forward, bilateral and multilateral development finance institutions need to direct more funds towards large-scale energy transition projects. These institutions have a unique capability to support projects that can accelerate the global energy transition.

Between 2013 and 2020, private investments, accounting for about 75% of total investments, were heavily funneled into advanced economies and mature technologies. These capital flows reflected a common trait of mainstream private capital – prioritizing financial returns over social and environmental gains. High-risk environments, typically underprivileged countries, were often neglected or served at a higher cost. This observation underscores a greater need for public financing and reduced reliance on private capital.

However, public funds are limited. Consequently, governments have been focusing on de-risking projects to improve their risk-return profiles, thereby attracting private capital. Among the risk-mitigation instruments, sovereign guarantees have gained preference among lenders, though they might hamper a country’s ability to invest in other critical infrastructure development.

Amidst the pressing need to accelerate the energy transition and the current socio-economic development goals, there’s a call for more innovative instruments. These would benefit underinvested countries without exacerbating their fiscal constraints. There’s also a necessity to redefine risk, broadening its scope to include environmental, planetary, and social risks. The limited public funds in the developing world call for more international involvement.

Even though bilateral and multilateral DFIs contributed less than 3% of global investment in 2020, more funds need to be directed towards regions struggling to attract private investment. The recent macro-economic and geopolitical challenges have necessitated a diversion of attention and funds towards pressing issues such as inflation, supply-chain disruptions, and slow growth. In such an environment, renewable investments are competing for scarce public resources.

Despite the challenges, energy transition investments can pave the way for equitable, inclusive, and resilient economies. International collaboration and public finance flows from the Global North to the Global South are essential to achieving the 1.5°C Scenario and realizing its socio-economic benefits.

Public capital, transferred through official development assistance, including donations and grants, concessional and market-rate financing from DFIs and export credit agencies, will be crucial for financing the energy transition, especially in fiscally constrained countries. Various instruments, such as government spending, debt, equity, fiscal policy, and regulations, should be utilized to distribute benefits equitably. However, caution is advised to ensure the benefits are not clustered among specific industry instruments.

Public finance is instrumental in driving energy transition through deployment, integration, enabling, and structural change policies. Deployment policies allow public funds to be invested directly in transition assets or in policies attracting private investments. Integration policies fund the infrastructure for integrating renewables into the energy system. Enabling policies support long-term energy planning, capacity building, and other technical assistance, while structural change policies redesign power markets for renewable energy and promote social inclusion. Fiscal flexibility and a global wealth tax can further boost public investment. Tax incentives and funding for infrastructure often overlap across policies, demonstrating the complex interplay between different instruments.

Despite these efforts, there is a call for more capital and transformations in lending to developing nations, such as grants and concessional loans. The importance of risk mitigation, investment swaps from fossil fuels to renewable energy, and the involvement of philanthropies is underscored. The goal is to ensure equitable finance flows by recognizing the different resources and starting conditions of countries.

By 2030, investment in transition technologies and infrastructure must drastically increase to USD 45 trillion to avoid emissions-intensive energy sources and asset stranding. This includes investing in efficiency, grid expansion, and flexibility, with an annual average investment of USD 1.8 trillion needed for energy efficiency alone. Transition investments will require USD 4.5 trillion annually until 2030, focusing on renewables, efficiency, and low-carbon technologies.

A rise in demand for critical materials such as copper, lithium, and cobalt, which are vital for renewable technologies, is anticipated. Despite this, these materials can remain in the circular economy through reuse and recycling, unlike investments in the fossil fuel economy which become an economic burden post-use. Therefore, significant investments in mining, processing capacities, and supply chain innovation are required, given that copper demand alone is expected to double by 2030, requiring an investment of USD 160 billion.