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New report: $12.1 trillion must be invested in new renewable power generation over next 25 years to limit climate change
Industry is “poised for rapid growth,” especially in emerging markets
To reach the level of investment in new renewable power generation needed to avert dangerous climate change, $12.1 trillion of investment will be needed over the next 25 years, which is $5.2 trillion above business-as-usual projections, a new report by Ceres and Bloomberg New Energy Finance concludes.
“Clean energy investment is poised for rapid growth,” wrote the report authors, citing the cost competitiveness of renewables such as solar and wind and escalating investor interest in financing climate solutions. “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.”
The report, Mapping the Gap: Road from Paris, was announced at the UN Investor Summit on Climate Risk, a gathering of 500 global investors this week organized by Ceres, the United Nations Foundation and the United Nations Office of Partnerships held in the wake of the historic climate agreement last month in Paris.
Among the report’s key highlights:
- Achieving the Paris climate agreement’s goal to limit global temperature rise to below 2 degrees Celsius 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.
- The investment surge will require a greatly expanded use of investment vehicles supporting clean energy, including bonds, asset-backed securities and others 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,” BNEF Chairman Michael Liebreich said, citing the seven-fold growth in renewable energy installations in the past decade alone. “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.”
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,” said Sue Reid, Vice-President of Climate & Clean Energy at the nonprofit group Ceres. “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.”
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 real estate, 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," said Ken Locklin of Impax Asset Management, who partnered on the research of Mapping the Gap. "Clean energy is a critical part of 21st infrastructure, so this transformation is fundamental to our investment future."
Ceres is a nonprofit sustainability organization mobilizing business and investor leadership on climate change, water scarcity and other global sustainability challenges. Ceres coordinates the Investor Network on Climate Risk, a network of more than 110 institutional investors with collective assets totaling $13 trillion. For more information, visit www.ceres.org or follow on Twitter @CeresNews.
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