Huge change in energy investment needed to meet climate targets

Investment in clean energy must increase by up to 50 percent in some economies to limit global temperatures to 1.5 degrees Celsius.

This is one of the findings from a new scientific study on the financial requirements of the Paris climate agreement.

Researchers from the Austria-based International Institute for Applied Systems Analysis (IIASA) used six different modelling techniques to calculate the costs and consequences of meeting the world’s climate goals.

They found that the overall level of energy investment only needs to modestly increase under their scenarios, but, crucially, financial flows have to radically shift away from fossil fuels and into clean technologies.

Investments in low-carbon and energy efficiency will have to quickly surpass those of fossil fuels by 2025. After this date, investment will need to climb exponentially, by $130 billion a year just to meet the existing Nationally Determined Contributions (NDCs) under the Paris deal. These national efforts, however, will still mean global temperatures will reach over 3 degrees before the end of the century.

To meet the 2 degrees scenario, investments will have to grow to $320 billion a year and $480 billion for 1.5 degrees. These figures are more than 25 percent of total energy investments, but increases to over half in major economies, such as China and India.

“We know that limiting global temperatures to well below 2 degrees demands that renewables and efficiency scale up rapidly, but few studies have calculated the energy investment needs for a fundamental system transformation, at least not with an eye toward 1.5 degrees and using multiple scientific modelling frameworks running side-by-side,” says IIASA researcher and lead author of the study David McCollum. 

“It’s important for professionals in the finance sector to be aware how much more investment in low carbon solutions is needed if the world is to meet the Paris targets. The NDC pledges are a step in the right direction, though much deeper changes in the energy investment portfolio are clearly necessary,” says Elmar Kriegler, a co-author and vice-chair at the Potsdam Institute for Climate Impact Research.

The paper was published in the Nature Energy journal this week.