Mostafa Monira Firdouse, Green Finance Advisor of Friends of the Earth (HK)
As highlighted by the IPCC’s recent report on the overwhelming and alarming physical evidence of the dire state of our climate, it’s difficult to overstate the pace of progress required. The energy transition is a significant part of the solution to this crisis and the energy sector must transition to renewables first, in order for the rest of the economy and society to curb greenhouse gas emissions.
- The global energy sector would need to dramatically expand electricity generation capacity to meet growing demand from population increases but also to enable the rest of the economy to shift off fossil fuels and onto electricity from renewable sources.
- Investments in renewable energy will peak over the next decade and present a big opportunity in key markets.
According to ARCADIS, the energy sector would need to invest €6.13 trillion – approximately 7% of global GDP – in renewables this decade to contribute to a global net zero economy, consistent with a 1.5°C scenario. Over the same period, investment in transmission and distribution within global energy grids would need to hit €2.47 trillion.
Considering the huge investment need for rapid energy transition, it is clear that the funding cannot be sourced only from public or private funding. It should be blended. Public and private financing is the key to increasing the resources that will accelerate the transition. Banks and non-bank financial institutions play significant role to reach out existing and new clients to shift towards renewable energy and climate change action plan, aligned with Paris Agreement.
Parallelly, both the public and private sectors will need to fund towards developing technologies that will scale up and renewable energy generation and eventually lead to lower electricity prices.
Smart and integrated solutions are needed to facilitate cost-effective transitions, improve the interface between new and existing technologies and to ensure quality energy generation and transmission to end users.
Investment could also accelerate with the support of incentives, using models from other parts of the economy. Like; discounted rate in Transition Finance.
Likewise, adopting carbon taxing policy, which has a critical role to play in creating a fairer transition. Besides, governments will need to incentivize not only energy companies that move rapidly onto renewables but also support consumers who cannot afford to pay higher prices for energy.
Silver lining: Energy transition could mean cheaper bills for customers across the globe by 2028. If it is done right, energy transition could bring down the cost of energy and free up billions in disposable income.